Second Quarter 2019 Earnings Presentation July 25, 2019
Disclaimer Statement Regarding Safe Harbor For Forward-Looking Statements This presentation contains forward-looking statements, that is, information related to future, not past, events. Such statements generally include the words “believes,” “plans,” “intends,” “targets,” “will,” “expects,” “suggests,” “anticipates,” “outlook,” “continues,” or similar expressions. Forward-looking statements include, without limitation, expected financial positions; results of operations; cash flows; financing plans; business strategy; operating plans; capital and other expenditures; competitive positions; growth opportunities for existing products; benefits from new technology and cost reduction initiatives, plans and objectives; and markets for securities. For these statements, Grace claims the protections of the safe harbor for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Like other businesses, Grace is subject to risks and uncertainties that could cause its actual results to differ materially from its projections or that could cause other forward-looking statements to prove incorrect. Factors that could cause actual results to differ materially from those contained in the forward-looking statements include, without limitation: risks related to foreign operations, especially in emerging regions; the costs and availability of raw materials, energy and transportation; the effectiveness of its research and development and growth investments; acquisitions and divestitures of assets and businesses; developments affecting Grace’s outstanding indebtedness; developments affecting Grace's pension obligations; legacy matters (including product, environmental, and other legacy liabilities) relating to past activities of Grace; its legal and environmental proceedings; environmental compliance costs; the inability to establish or maintain certain business relationships; the inability to hire or retain key personnel; natural disasters such as storms and floods, and force majeure events; changes in tax laws and regulations; international trade disputes, tariffs and sanctions; the potential effects of cyberattacks; and those additional factors set forth in Grace's most recent Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, which have been filed with the Securities and Exchange Commission and are readily available on the Internet at www.sec.gov. Reported results should not be considered as an indication of future performance. Readers are cautioned not to place undue reliance on Grace's projections and forward-looking statements, which speak only as of the dates those projections and statements are made. Grace undertakes no obligation to release publicly any revision to the projections and forward-looking statements contained in this announcement, or to update them to reflect events or circumstances occurring after the date of this presentation. Non-GAAP Financial Terms In this presentation, Grace presents financial information in accordance with U.S. generally accepted accounting principles (U.S. GAAP), as well as the non-GAAP financial information described in the Appendix. Grace believes that this non-GAAP financial information provides useful supplemental information about the performance of its businesses, improves period-to-period comparability and provides clarity on the information management uses to evaluate the performance of its businesses. In the Appendix, Grace has provided reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. These non-GAAP financial measures should not be considered as a substitute for financial measures calculated in accordance with U.S. GAAP, and the financial results calculated in accordance with U.S. GAAP and reconciliations from those results should be evaluated carefully. 2019 W. R. Grace & Co. | 2
2Q19 Highlights and Business Performance Hudson La Force President and Chief Executive Officer 3
2Q19 HIGHLIGHTS 2Q19 Performance Financial Highlights • Sales of $514M, up 5.7%; up 8.0% on constant currency 2Q19 YoY ($M except EPS) – Strong organic growth driven by higher sales volumes (+5.3%) and improved price (+2.7%) up 5.7% $514M Sales up 8.0% • Adj. EBIT up 6.0% on constant currency • Adj. EPS of $1.16 per share, up 8.4% $127M • Strong cash flow supports capital allocation strategy up 6.0% Adj. EBIT 24.7% – Invested $46M of capital in growth, operating excellence and other Adj. EBIT Margin priorities – Acquired unique zeolite technology to further long-term FCC crude- to-chemicals strategy $1.16 up 8.4% Adj. EPS – Returned $43.2M to shareholders – Net leverage of 3.2x EBITDA • GMS investments exceeding expectations $68M down $42.0M – $17M invested to date; realizing >$15M in annual earnings benefits Adj. FCF – Increasing expected annual benefit to 75 bps from 50 bps Commercial Excellence and Value-Selling Drive Solid Quarter * Definitions of non-GAAP financial terms and reconciliations to the closest GAAP term are provided in the Appendix 2019 W. R. Grace & Co. | 4
REVISED FULL-YEAR 2019 OUTLOOK Discrete Items Affecting Full- Full-Year 2019 Adjusted EBIT Bridge Year 2019 Earnings ($M except EPS) • Including benefit of cost reduction actions and insurance recoveries, full-year earnings $490 - $500 expected to be lower by $15-$17M (12) Full-year 2019 Adjusted EBIT Bridge: $475 - $483 (9) 1 1. $12M impact from North American FCC catalyst 7 (8) customer's bankruptcy and shut down 2 11-12 6 (5-6) 3 2. $9M impact from expected customer-specific 4 5 inventory correction Specialty Catalysts 3. $8M impact from equipment failure resulting in a manufacturing disruption at one of our silicas plants; operations are now fully restored 4. $5-$6M impact reflecting all other changes from plan 5. $11-$12M benefit from cost reduction actions 6. $7M benefit from business interruption Prior FCC SC Customer MT Other Cost Insurance Revised insurance recoveries 2019 Outlook Catalyst Inventory Manufacturing Reduction Recoveries 2019 Outlook (4/25/19) Customer Correction Disruption Actions (7/25/19) * Definitions of non-GAAP financial terms and reconciliations to the closest GAAP term are provided in the Appendix 2019 W. R. Grace & Co. | 5
CATALYST TECHNOLOGIES – 2Q 2019 RESULTS Catalysts Technologies Sales & Gross Margin • Solid demand for catalysts and licensing é 30 bps 43.8% 43.5% technologies in 2Q19 3.0% (1.5%) $395.7 é 8.6% – Sales up 10.1% on constant currency 7.1% $364.4 – Improved price in both segments $187.4 • Specialty Catalysts sales up on solid demand for $168.3 é 11.3% catalysts and licensing – Polyolefin capacity additions continue to support demand $208.3 $196.1 é 6.2% – 3 licenses announced YTD – Closely monitoring demand and inventory levels 2Q18 Volume Price Currency 2Q19 • Refining Technologies up on good volume Refining Technologies Gross Margin Specialty Catalysts growth and strong pricing – Pricing improved >200 bps trailing twelve months – Completed Rive Technology acquisition; reinforces long-term FCC crude-to-chemicals strategy Operating Income & Operating Margin • ART HPC catalyst demand strong $125.2 é 10.1% $113.7 – Some delays in sales volumes due to timing of start- ups and catalyst deliveries é 40 bps – Full-year sales heavily weighted to 4Q19 31.2% 31.6% – Plant expansion on-track 2Q18 2Q19 Note: 2Q19 CT sales by geography: NA 32%, EMEA 40%, APAC 24%, LA 4% 2019 W. R. Grace & Co. | 6
MATERIALS TECHNOLOGIES – 2Q 2019 RESULTS Materials Technologies Sales & Gross Margin • 2Q19 sales up 2.0% on constant currency 39.9% 36.2% ê 370 bps – Solid demand continues in Consumer/Pharma (4.8%) 1.8% • Challenging comparison to record sales, 0.2% $121.3 ê 2.8% $117.9 margins and earnings in 2Q18 ê 7.3% $41.3 $38.3 • Segment demand picture – Consumer/Pharma: solid demand, up in all regions $33.0 é 14.5% $37.8 – Coatings: some global market softness, particularly in Asia Pacific and EMEA $41.2 $35.6 ê 13.6% – Chemical Process: down on timing in adsorbents and mix-shift to higher growth segments 2Q18 Volume Price Currency 2Q19 • Gross margin down 370 bps Coatings Chemical Process Margin Consumer/Pharma – Tough comparison with record 2Q18 – 130 bps of higher operating costs directly related to manufacturing disruption Operating Income & Operating Margin • Operating Margin decreased 4 pts on lower sales and gross margin $29.6 ê 18.6% $24.1 24.4% ê 4 pts 20.4% 2Q18 2Q19 2019 W. R. Grace & Co. | 7 Note: 2Q19 MT sales by geography: NA 26%, EMEA 46%, APAC 20%, LA 7%
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