Third Quarter 2018 Earnings Presentation October 24, 2018 - PowerPoint PPT Presentation

Third Quarter 2018 Earnings Presentation October 24, 2018

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; 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. 2018 W. R. Grace & Co. | 2

3Q18 Highlights Fred Festa Chairman and Chief Executive Officer 3

3Q18 Highlights • On track to deliver 2016-2021 Financial Framework; strong execution 3Q18 continues Financial • 3Q18 sales up 15.2% YoY; up 15.9% on constant currency Highlights – 8.2% organic growth on strong sales volumes and improved price • Adj. EBIT up 13.4% YoY; Adj. EPS up 23.3% YoY • Increasing full-year 2018 Adj. EPS outlook to $4.00 to $4.05, from $3.90 to $4.00 per share • Expect continued top-line and earnings growth in 2019 Notable • Now have reasonable estimate for Libby mine site remediation based Developments on investigation and feasibility study – Recorded $70M non-cash, pretax charge – Spending to occur over ~10 years; most spending to begin in or after 2022 Positioned to Deliver Sustainable Profitable Growth and Drive Shareholder Value Creation 2018 W. R. Grace & Co. | 4

Strategic Update and Business Review Hudson La Force President and Chief Operating Officer 5

STRATEGIC UPDATE 1 Progress on Strategic Initiatives Invest to accelerate growth and extend our • Strong fundamentals and sustainable growth drivers competitive advantages support solid underlying momentum þ Demand for plastics, petrochemical feedstocks and clean fuels 2 Invest in great people þ Growing household income to strengthen our high-performance culture þ Stricter environmental standards þ Increased focus on heath and wellness 3 3 Execute the • Commercial Excellence and Operating Excellence Grace Value Model efforts driving operating efficiencies and profitability to drive operating excellence • Strategic investments accelerating growth, extending competitive advantages and driving operating excellence 4 Acquire to build our • CFO search progressing as planned technology and manufacturing capabilities for our customers • Acquisition integration on track Strong Underlying Fundamentals Driving Growth and Profitability 2018 W. R. Grace & Co. | 6

FINANCIAL OUTLOOK Full-Year 2018 Outlook 5-Year Financial Framework 2016-2021 • Total sales up 11-12%; up 6-7% organically 2019 Framework ($M except EPS) • Raising Adj. EPS outlook to $4.00-$4.05, 6-8% (total) Sales Growth On-track 4-6% (organic) from $3.90-$4.00 Adj. EBIT • Narrowing Adj. EBIT outlook to $453-$457M 6-8% High Single Digits • Narrowing Adj. FCF outlook to $230-$240M Adj. EPS > 10% Low Double Digits > $1B Adj. FCF On-track Over 5 Years Adj. ETR 27% - 28% On-track 12% - 15% Adj. Cash Tax Rate * Full-year 2018 outlook as of 10/24/2018 * Comments on 2019 as of 10/24/2018 Solid Organic Growth Driven By Customer Demand for High Value Product Technologies * Definitions of non-GAAP financial terms and reconciliations to the closest GAAP term are provided in the Appendix 2018 W. R. Grace & Co. | 7

ACTIVELY MANAGING MACROECONOMIC RISKS U.S. / China Tariffs Inflation • Actively managing with pricing, supply chain, • Impact of U.S. / China tariffs negligible at and productivity this time – YTD inflation of 160 bps • U.S. export sales to China <4% – Expect similar level in 4Q18 • Raw materials from China subject to tariffs <1% of spend • "Top 5" raw materials ~17% COGS Currency – No single input more than ~5% of COGS • ~95% of sales linked to USD and EUR – "Top 5" raw materials include: currencies aluminum, caustic soda, natural gas, • Exposure to emerging market currencies rare earth and sodium silicate <2% of sales (listed alphabetically, not by spend) • Minimal exposure to oil-based materials, Interest Rates such as solvents, ~3% of spend • 2Q18 refinancing reduced floating rate exposure • 85% of long-term debt is fixed rate Macroeconomic Risks Identified and Being Addressed 2018 W. R. Grace & Co. | 8

CATALYSTS TECHNOLOGIES – 3Q 2018 RESULTS Summary Financial Results Catalysts Technologies 3Q YoY 3Q 2018 2017 Change • Catalysts demand and margins remain strong ($M) Sales $378.2 $317.5 19.1% – Operating margin negatively impacted 375 bps Specialty Catalysts 173.3 121.0 43.2% by 3Q17 business interruption insurance Refining Technologies 204.9 196.5 4.3% proceeds that did not repeat Gross Margin 43.4% 41.4% 200 bps – Sales up 19.6% on constant currency Operating Income 119.5 103.6 15.3% • Specialty Catalysts growth driven by Operating Margin 31.6% 32.6% -100 bps acquisition, innovation and licensing – Solid sales ($30M) and earnings contributions from acquisition Factors Impacting Sales – Strong volume growth from PP and PE catalysts 3Q YoY Change – PP licensing pipeline remains strong 2018 Volume 18.4% • FCC pricing momentum continues Price 1.2% – On track to improve >200 bps for FY18 Currency (0.5)% • ART JV earnings up $1.1 million; expansion Total 19.1% progressing toward 4Q19 start-up Note: 3Q18 CT sales by geography: NA 33%, EMEA 34%, APAC 27%, LA 6% 2018 W. R. Grace & Co. | 9