Methanex Corporation · TSX:MX
Methanex — Investor Presentation (March 2019)
52 slides from Methanex's investor presentation, Mar 4, 2019
Slide 1: Methanex Investor Presentation March 2019
Methanex Investor Presentation March 2019
Slide 2: Forward-looking statements & non-GAAP measures
Forward‐looking statements & non‐GAAP measures Information contained in these materials or presented orally on the earnings conference call, either in prepared remarks or in response to questions, contains forward‐looking statements. Actual results could differ materially from those contemplated by
Slide 3: Investment opportunity
Investment opportunity Global Methanol Leader •Leading market share, global supply chain and competitive assets •Solid cash generation capability at a broad range of methanol prices Strong Cash Flow •Since 2013, reduced outstanding shares by 20% through share Generation & repurchases of over $1 bill
Slide 4: Leadership
Leadership Market Share Estimated Market Share (%) 16% • ~80 million tonnes global 14% demand 12% 10% • Top producers ~ 40% of global 8% sales 6% • Methanex is the global leader 4% • ~14% share of global market 2% • Unique global position with sales 0% in all major regions 4
Slide 5: Methanol end uses
Methanol e uses ~% ene Uses ¢ e ° 55% of Demand) ae 4 Olefins 4 4 Acetic Acid : i Fleece, Adhesives, er Paints Marine Fuel Formaldehyde senha Methanol: * Dimethyl- ether ‘ 6, oP 4 LPG Replacem ’s it used for? e Fuel Blending Energy & MTO (45% of Demand; -_— High Growth)
Slide 6: Strong Demand Growth
Strong Demand Growth Projected 5% CAGR over next four years led by methanol‐to‐olefins (“MTO”) (million tonnes) 2019 – 2022 CAGR: 5% 100 90 2013 – 2018 CAGR: 6% Methanol‐to‐ 80 Olefins 70 Other Energy 60 Applications 50 Traditional 40 Chemical Applications 30 2013 2014 2015 2016 2017 2018 2019 2020
Slide 7: Methanol as energy
Methanol as energy 140 18.00 • Methanol is primarily 130 17.00 Brent Crude Oil 16.00 made from natural gas, 120 110 15.00 and is a liquid fuel and oil 14.00 100 13.00 product alternative 12.00 90 • High priced oil versus US$ / mmbtu 11.00 US$ / Barrel 80 10.00 70 9.00 natural gas creates 60 8.00 sub
Slide 8: Methanol-to-olefins (MTO)
Methanol‐to‐olefins (MTO) • A number of new plants under Natural Food packaging, Polyethylene plastic bags construction to be Gas or completed over the Coal Feedstock Pipes, window coming years (8MMT EDC PVC frames methanol demand Ethylene potential) Synthesis EO MEG PET Textile, bottles Gas • MTO p
Slide 9: Emerging market – marine fuel
Emerging market – marine fuel • International Maritime Organization IMO Current and Future Sulphur Limits (IMO) reduced sulphur limits to: 5.00% • 0.1% in 2015 in Existing Emission Control Areas (ECAs) in North 4.00% America and Europe 3.00% • 0.5% in 2020 globally 2.00% • Predominant shipping fuel
Slide 10: Positive marine fuel developments
Positive marine fuel developments • Waterfront Shipping launched seven new 50,000 dwt vessels in 2016 with methanol dual‐fuel MAN 2‐stroke engines • Waterfront’s “Lindanger” recognized by Maritime Reporter and Engineering News as one of 2016’s ten great ships • Waterfront Shipping is adding four new
Slide 11: Fuel blending
Fuel blending China fuel demand growth expected to continue • Since 2004, sixteen provinces have issued local standards on methanol‐blended fuel, most of which are for low level methanol‐ blended gasoline. • China completed a successful high blend (M85‐M100) methanol vehicle pilot program and two ci
Slide 12: Emerging market - industrial boilers
Emerging market ‐ industrial boilers Significant Potential Opportunity in China due to environmental reforms Environmentally Friendly • reduction of PM, SOx, and NOx Technology‐Ready • burner developed • propeller compatible Economically Competitive • moderate infrastructure investment • 1/2 million
Slide 13: Demand and supply outlook
Demand and supply outlook MMT 18 16 Estimated demand growth 14 MTO and 12 Other Energy Estimated • Healthy demand growth of 5% CAGR (2019‐ New China 2022) 10 Supply 8 • Led by China and energy applications 6 Traditional Estimated New 4 Chemical Supply 2 (ex‐China) Estimated new supply 0 • New indust
Slide 14: Reinvestment economics
Reinvestment economics • Long‐term price required for a greenfield project to Estimated Nominal IRR at Alternative Methanol and Gas Prices reach Methanex return Natural gas Realized Methanol Price ‐ $/ tonne target ~$400/tonne $/mmbtu 300 350 400 450 • Any investment decision for Methanex would also
Slide 15: Illustrative methanol industry cost curve
Illustrative methanol industry cost curve • Flat portion of cost curve provides floor $500 Delivered Cash Cost USD /tonne) $450 price support in lower energy price $400 environment • Steep high end includes Coastal China $350 $300 high cost coal and natural gas based $250 production • Other higher c
Slide 16: Global methanol leader
Global methanol leader Production sites, office locations, distribution terminals and shipping lanes around the world • Global production sites strategically positioned to supply every major global market • Extensive global supply chain and distribution network of terminals/storage facilities enable
Slide 17: Methanex annual production capacity
Methanex annual production capacity Year Built 000 tonnes Louisiana, USA Geismar 1 2015 1,000 USA Canada Geismar 2 2015 1,000 Medicine Hat, Alberta 1981 600 New Zealand Motunui 1 1 1985 950 Motunui 2 1 1985 950 New Trinidad Waitara Valley 1983 530 Zealand Trinidad Titan 2000 875 Atlas (63%) 2004 1,1
Slide 18: Significant increase in production per share
Significant increase in production per share Production Volume – Methanex Share (millions of tonnes) 9.4 • Capital 8.4 investments 7.2 7.2 combined with 7.0 share repurchase programs to 4.9 5.2 increase cash flow 4.3 capability per share Capacity Potential* 2013 2014 2015 2016 2017 2018 Current Full
Slide 19: Chile growth opportunity
Chile growth opportunity • Highly value accretive opportunity to restore Chile to a 1.7 million tonne two‐plant operation at a very low capital cost • Completed restart of idle Chile IV facility at the end of Q3‐2018 • Signed natural gas agreements in 2018 to allow for up to a maximum of 75% of a tw
Slide 20: Geismar 3 growth opportunity
Geismar 3 growth opportunity • Opportunity to increase production capacity with significant advantages relative to other US Gulf projects •Potential Geismar 3 facility (~1.8MMT) would be constructed adjacent to existing Geismar 1 and 2 facilities and required land has been secured •Estimated capital
Slide 21: Financial results
Financial results Average Modified ROCE of 11% over last 10 years. Robust 2018 EPS results. $8.00 24% $7.00 Adjusted EPS (1) 21% $6.00 Modified ROCE (2) 18% $5.00 15% Adjusted EPS $4.00 12% Modified ROCE $3.00 9% $2.00 6% $1.00 3% $0.00 0% ‐$1.00 ‐3% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Slide 22: Valuation considerations
Valuation considerations • Strong cash generation capability at a range of methanol prices 1 Methanex interest (63.1% Atlas, 50% Egypt) Current Potential 2 Full Potential 3 2 Current potential = reflects Trinidad Annual Operating Capacity1 8.4 9.4 operating rate of 85% (1.7MMT), Chile operating rate
Slide 23: EBITDA and free cash flow capability
EBITDA and free cash flow capability1 Free cash 1,600 flow yield 1,400 EBITDA at $60 1,200 Free Cash Flow share price Millions of dollars 19% 1,000 800 14% 600 9% 400 200 ‐ 300 350 400 Methanol price ($ per tonne) 1 Cash Flow before payment of dividend. See 8.4 million tonne production capability sc
Slide 24: EBITDA and free cash flow capability sensitivities
EBITDA and free cash flow (“FCF”) capability sensitivities Estimated Sensitivities Sensitivities versus Run‐rate Case of: EBITDA +‐ $10/tonne ARP • Price (ARP): $350/tonne FCF +‐ $10/tonne ARP • Volume: 8.4 MMT • EBITDA Capability: EBITDA +‐ 100k tonnes volume $1.1 billion FCF +‐ 100k tonnes volume
Slide 25: Balanced approach to capital allocation
Balanced approach to capital allocation • $110 M annual interest expense Debt Service • $25 M debt payments (MX share) Essential • Next maturity ‐ $350M, end of 2019 Maintenance • $120 M avg. annual maintenance capex • Dividend $1.32/share annually and Meaningful, approximately $110 million (in 2018
Slide 26: Liquidity and capital structure
Liquidity and capital structure • Strong financial and liquidity position Liquidity as at Q4‐18 Capital Structure as at Q4‐181 (US$ millions) (US$ millions) Cash (MX Share) 233 Total Shareholders’ Equity 1,511 Revolving Credit Facility 300 Total Debt 1,324 533 Total Debt/Capitalization 47% Net Debt/
Slide 27: Returning excess cash to shareholders
Returning excess cash to shareholders 600 500 millions of dollars $1.6 billion returned 400 to shareholders 300 since 2013 200 Since 2013, reduced 100 outstanding shares by 20% ‐ 2014 2015 2016 2017 2018 Dividends Share Repurchases 27
Slide 28: Returning cash to shareholders
Returning cash to shareholders $0.35 110 Regular Dividends per Share • 2018 dividend $0.30 105 Shares Outstanding at December 31 is $0.33/share Average Quarterly Dividend (US$) per quarter Shares Outstanding (millions) $0.25 100 (current yield $0.20 95 ~2.2%1) • Since 2013, $0.15 90 reduced $0.10 85
Slide 29: Key corporate governance highlights
Key corporate governance highlights Corporate Governance Director Compensation 11 of 12 Independent Directors Required director equity ownership Separate chair and CEO of 3x total annual retainer All Committee members are independent Prohibition on hedging Strong risk and strategy oversi
Slide 30: Methanex is committed to Responsible Care
Methanex is committed to Responsible Care® • At Methanex, Responsible Care® is the foundation of everything we do and a key element of our global culture: » community safety » employee health and safety » environmental protection » product stewardship » social responsibility • As an industry, we mus
Slide 31: Management alignment
Management alignment • Executive shareholding requirements: • CEO ‐ 5 times salary in Methanex shares or share units • Senior executives (5 members) – 3 times salary • Other senior management (~50 employees) – 1 times salary • Short‐term incentive linked to ROCE (return on capital employed) • Long‐t
Slide 32: Summary
Summary • Global leader with competitive • Expect strong cash generation assets • Low capital cost growth potential in • Solid franchise value that is difficult Chile and Geismar to replicate • Dividends / share buybacks • Global marketing, supply chain and shipping network • Strong financial positi
Slide 33: Forward-looking information
Forward‐looking information This Presentation, our Fourth Quarter 2018 Management’s Discussion and Analysis ("MD&A") as well as comments made during the Fourth Quarter 2018 investor conference call contain forward‐looking statements with respect to us and our industry. These statements relate to fut
Slide 34: Q&A
Q&A 34
Slide 35: Appendix
Appendix the power of agility
Slide 36: Methanol is...
APPENDIX Methanol is… • Primarily produced from natural gas 36
Slide 37: Methanol usage
APPENDIX Methanol usage… …by derivative …by region Other Energy Formaldehyde AP (ex. Applications 28% China) 29% 16% China 58% Europe 13% Acetic Acid 9% Latin MTO America 14% Other North 2% Traditional America 20% 10% Source: IHS Chemical 2019 World Update 37
Slide 38: Methanex realized pricing history
APPENDIX Methanex realized pricing history • Methanex posts 10 year average reference prices $600 realized price of monthly in Asia US $347/tonne $500 and North America and quarterly in $400 Europe $300 • Realized pricing is $200 lower than reference prices $100 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 20
Slide 39: Methanol consumers
APPENDIX Methanol consumers • Concentrated consumer base – 30% of global demand from top 20 consumers • Main consumers are large, global chemical and China MTO companies: – Celanese, BP, Momentive, Sanjiang, Sailboat, Sabic, BASF, etc. • Methanex supplies primarily traditional chemical derivative cu
Slide 40: Benefits of methanol as a vehicle fuel
APPENDIX Benefits of methanol as a vehicle fuel • Liquid fuel – can be blended with gasoline and ethanol in today’s vehicles at minimal incremental costs • Clean burning fuel that produces fewer smog causing emissions when blended with (or substituted for) gasoline • High octane fuel which improves
Slide 41: Methanol value proposition as a vehicle fuel
APPENDIX Methanol value proposition as a vehicle fuel • Methanol is an affordable gasoline substitute in China, and can reduce overall emissions versus gasoline • In dedicated methanol vehicles and at high blends (M85 and M100), methanol burns more efficiently than gasoline • Most fuel blending in C
Slide 42: Methanol as a marine fuel
APPENDIX Methanol as a marine fuel • Methanol (MEOH) achieves low emissions & bridge to lower CO2 in the future (renewable/bio methanol) Source: Stena lines Emission reductions when compared to heavy fuel oil 42
Slide 43: Cost Competitive Fuel Cost vs. Marine Gas Oil (MGO)
Cost Competitive Fuel Cost vs. Marine Gas Oil (MGO) ‐ Methanol is an economically viable alternative marine fuel over the cycle ‐ Potential for short payback on investment based on historical fuel pricing Marine Fuel Pricing Methanol adjusted to MGO Energy Equivalency $1,200 $1,100 $1,000 $900 US$ /
Slide 44: Di-methyl ether (DME) market
APPENDIX Di‐methyl ether (DME) market • DME can be blended directly with LPG (propane) up to approximately 20% for cooking and heating applications • Future promising application for DME is as a diesel replacement: • Oberon Fuels Produces DME in the U.S. • ASTM Standard issued, California approval,
Slide 45: Methanol fuel blending growing outside China
APPENDIX Methanol fuel blending growing outside China Several countries outside China in the assessment or near‐commercial stage for fuel blending, however minimal demand is included in current forecasts from these regions Iceland U.K. Russia Germany Denmark Azerbaijan Netherlands China Alaska U.S
Slide 46: Methanol as a fuel outside China
APPENDIX Methanol as a fuel outside China • Europe is blending methanol into fuel today (up to 3% blending permitted), and in 2016, United Kingdom announced significant fuel tax incentive to support high blend methanol fuels • Australia ‐ Coogee demonstration project completed and regulations in pla
Slide 47: Methanol as renewable energy
APPENDIX Methanol as renewable energy • Methanol and DME is produced from fossil fuels and renewables LNG = Liquefied Natural Gas; DME = Di‐Methyl Ether; OBATE = On Board Alcohol to Ether (i.e. methanol converted to DME on board ships) 47
Slide 48: Carbon recycling international (CRI)
APPENDIX Carbon recycling international (CRI) CRI’s GO Plant in Svartsengi, Iceland • Methanex became a CRI shareholder in 2013 • World’s greenest methanol – technology captures CO2 from industrial emissions and converts it into Renewable Methanol • Sales into Europe gasoline blending market (M3) •
Slide 49: Methanex cost structure
APPENDIX Methanex cost structure • Natural gas • Fixed Manufacturing and G&A costs • Long‐term gas contracts for approximately 60% of • Primarily people costs capacity have fixed base price and variable component (approx. 1350 employees) linked to the price of methanol. This reduces methanol price e
Slide 50: Leverage – rating agency perspective
APPENDIX Leverage – rating agency perspective Pro Forma Rating Agency Credit Ratios • Leverage target = Investment Grade (US$ billions unless indicated) • Preserves financial flexibility Total Debt 1 • Lowers cost of debt Debt (Q4‐18) 1.3 • Access to longer‐term bond market, shipping market, etc. Ca
Slide 51: Foreign exchange sensitivity
APPENDIX Foreign exchange sensitivity • US dollar based business • Majority of revenues in US dollars (EU net exposure hedged) • Natural gas and freight costs in US dollars • Approximately $150 million in local currency costs (not actively hedged) • Approximately $100 million in non‐US dollar workin
Slide 52: Thank you
Thank you www.methanex.com linkedin.com/company/methanex‐ corporation @Methanex