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CORPORATE PRESENTATION MARCH 2015 CORPORATE PRESENTATION MARCH 2015 Alent today A GLOBAL SUPPLIER OF SPECIALTY CHEMICALS AND ENGINEERED MATERIALS SEGMENT Electronic interconnect materials, primarily solder in all forms: Assembly Materials (ALPHA) 2014 Net sales value (NSV)(1) END-MARKET KEY PRODUCTS • Printed circuit board assembly • Semiconductor packaging Predominantly electronics market focused 50% Specialty electroplating chemicals: Surface Chemistries (ENTHONE) • Semiconductor fabrication • Printed circuit board fabrication • Corrosion and wear-resistant, and decorative coatings Serving mainly the electronics and automotive/ industrial markets Assembly Materials (1) £413m(1) 50% Surface Chemistries Net sales value = Revenue less commodity metals that pass through to customers (tin, silver and gold) MARKET LEADING POSITIONS #1 OR #2 2 CORPORATE PRESENTATION MARCH 2015 Alent products SURFACE CHEMISTRIES ASSEMBLY MATERIALS Bar Solder Chemistry Wire Solder Solder paste Preforms Copper Damascene EVERYTHING WITH AN ON/OFF SWITCH – EVERY DAY, EVERYWHERE 3 CORPORATE PRESENTATION MARCH 2015 Alent model • A Global Market Leader + Outperformance of attractive end-markets • Competitive Advantage + • Financial Strength DELIVERING LONG-TERM GROWTH AND SUSTAINABLE MARGIN IMPROVEMENT 4 CORPORATE PRESENTATION MARCH 2015 A global market leader: Competitive landscape Assembly Materials Surface Chemistries Alent (Alpha) Atotech (Total) Senju (Japan/Private) Alent (Enthone) Tamura (Japan/Public) MacDermid (Platform) Indium (US/Private) Dow (Rohm & Haas) Kester (ITW - US/Listed) OMG (US/Listed) Henkel (Europe/Listed) Coventya (Europe/Private) Shenmao (Taiwan/Private) Umicore (Europe/Listed) Top 7 suppliers = 80% of the Market Top 7 suppliers = 65% of the Market MARKET LEADING POSITIONS #1 AND #2 5 CORPORATE PRESENTATION MARCH 2015 Strong global presence 2014 revenue by geography 2014 NSV by geography 28% 28% 39% 43% £644.8m £413.0m 29% Americas Europe Present in over 100 countries 33% Americas Asia “Just in time” supply chain 6 Europe Asia Recent investments in high growth Asia region CORPORATE PRESENTATION MARCH 2015 Focus on high unit volume end-markets Auto/Industrial c30% of NSV 8 7 6 Auto Electroplating 7 Water Treatment 8 Other Electroplating 1 Electronics c70% of NSV 6 1 Personal Computers 2 Mobile & Infrastructure 3 Microelectronics & Semiconductors 4 Auto Electronics 5 Other Electronics 2 5 3 4 MARKET LEADING POSITIONS INTO TARGETED END-MARKETS 1 2 3 4 5 7 6 7 8 CORPORATE PRESENTATION MARCH 2015 What makes end-markets attractive for Alent HIGH UNIT VOLUME APPLICATIONS HIGH UNIT END-MARKETS HIGH GROWTH POTENTIAL GLOBAL CONSUMER BASE GLOBAL PRODUCTION BASE ALENT TARGETS HIGH UNIT VOLUME GROWTH APPLICATIONS 8 CORPORATE PRESENTATION MARCH 2015 Alent’s competitive advantage DELIVERING LONG-TERM GROWTH AND SUSTAINABLE MARGIN IMPROVEMENT • Differentiated OEM customer model • Customer-driven, “fast cycle” R&D • Technical services • Global footprint 9 CORPORATE PRESENTATION MARCH 2015 Differentiated customer model Designs, Specifies, Manages Subcontractors (or In-House) Mandates Alent materials and processes • Sometimes sole supplier • Sometimes dual source supplier SUBCONTRACTORS CONTACT ALENT WITH PROBLEMS 10 CORPORATE PRESENTATION MARCH 2015 Alent OEM competitive advantage • Market leadership and globally recognised brands gets us to the table • Global team of value-in-use technical sales personnel • Customer-driven, “fast cycle” R&D, enabling innovation and new product pipeline • R&D facilities to model customer processes and generate data to demonstrate increased efficiencies and yield • Value-in-use strategy ensures long-term relationship and price stability • Strategic proximity to subcontractors (“customers”) EXCELLENT EXECUTION PROVIDES HIGH BARRIERS TO ENTRY 11 CORPORATE PRESENTATION MARCH 2015 Customer-driven R&D Approximate Allocation Strategy CORE PRODUCT DEVELOPMENT ADJACENT MARKETS NEXT GENERATION PRODUCTS & TECHNOLOGIES 70% 20% 10% • Customer focused product development • Gain market share by continuous stream of innovative products • Strategic Technology Initiatives for adjacent markets • Explore, select and nurture Emerging / Breakthrough / Disruptive Technologies • Key Customer engagements to feed Innovation Pipeline • “Learn Programs” to demonstrate feasibility • Approximately 60 R&D projects per year • Results in c30-40 new products per year DISCIPLINED ALLOCATION OF R&D RESOURCES ENSURES A SUSTAINABLE & ROBUST ROI 12 CORPORATE PRESENTATION MARCH 2015 “Fast cycle” R&D • Mobile requires rapid/continuous development • In only months Alent technology can reach volume manufacturing • Automotive requires intensive material characterisation to demanding segment specific reliability testing • Greater than a year for Alent technology to reach volume manufacturing Fast/long cycle YEARS 1 2 3 4 5 6 7 8 Mobile Automotive Product approval Product lifecycle ABILITY TO SERVE BOTH MODELS DEMONSTRATES THE STRENGTH OF OUR INTEGRATED OEM/VOC R&D STRATEGY 13 CORPORATE PRESENTATION MARCH 2015 Technical services • Global team of experienced engineers • Deep understanding of customers’ processes • Walking the floor, solving problems in real time • Not every problem requires a new product • “Fast cycle” R&D – develop, test and improve ON THE FRONT LINE, SOLVING PROBLEMS 14 CORPORATE PRESENTATION MARCH 2015 Global footprint • Global presence, enabling access to all key growth markets • Strategically positioned manufacturing and R&D presence close to industry defining customers • Longstanding and collaborative customer relationships • Leading position in innovation and product development • Strong presence in Asia, particularly China GLOBAL PRESENCE WITH CLOSE PROXIMITY TO OUR GLOBAL CUSTOMERS’ LOCAL SITES 15 15 CORPORATE PRESENTATION MARCH 2015 Financial strength - strong cash generation Working Capital/Sales % 18.3 16.9 Working capital 19.2 17.5 12.7 • £6m cash inflow during 2013 • Continued improvement from 13% in 2010 to 19% of sales in 2014 • Continuous improvement through • • • • Improved supply chain Reduced overdue receivables Continued SKU consolidation Supplier partnership and term extension 2010 2011 2012 Cash Generation % 2013 2014 99.7 90.4 90.2 81.1 61.3 Strong cash conversion • 90% of EBITDA in 2014 – Inventory build to support plant rationalisation and commissioning 2010 2011 2012 2013 2014 STRONG CASH GENERATION TO SUPPORT GROWTH 16 CORPORATE PRESENTATION MARCH 2015 Solid platform for growth Operational CAPEX £m / % of depreciation 189% Asset light • Capex of 1.3x depreciation in 2014 • Manufacturing footprint largely complete • Continued focus on R&D facilities 184% 152% 129% 16.1m 16.4m 13.7m 11.7 2011 2012 2013 2014 1.3 Net Debt/EBITDA (times) 1.0 1.0 Net debt • Net Debt at £108.3m or 1x EBITDA • Significant headroom from existing facilities 2012 2013 2014 RoCE % Return on capital employed • Returns in excess of 20% 50.6 15.9 2010 61.8 56.1 53.0 56.8 21.0 20.7 20.2 20.9 2011 2012 2013 2014 Inc. goodwill Exc. goodwill BALANCE SHEET STRENGTHENED PROVIDING SOLID PLATFORM FOR GROWTH 17 CORPORATE PRESENTATION MARCH 2015 Growth platform - capital allocation Reinvest for organic growth Progressive dividend policy 2 1 Acquisitions in line with strategy 3 Return excess to shareholders 4 DISCIPLINED BALANCE BETWEEN INVESTMENT FOR GROWTH AND RETURNS TO SHAREHOLDERS 18 18 CORPORATE PRESENTATION MARCH 2015 Alent’s performance vs end-markets – FY 2014 World production of electronic equipment % growth rates Converted at 2013 exchange rates 4.6 3.3 Automotive production growth in units (m) 5.1 105.3 -3.0 83.1 2013 2014 2015 85.6 2016 Source: Henderson, January 2015 2013 2014 2015 2016 2017 2018 Source: Prismark Partners, November 2014; IHS Automotive, January 2015 Alent’s exposure to end-market Alent’s Growth (2014) Surface Chemistries (50% automotive/industrial-focused) 4.7% • Performance Coatings 3% • Plating on Plastics 4% Assembly Materials (100% electronics-focused) • Alent vs Market (2014) 4.4% Surface Mount Assembly 13% • Paste 10% • Wire 7% Surface Chemistries (50% electronics-focused) 4.7% • Electronics Chemistries 7% • Printed Circuit Board Chemistry 6% • Copper Damascene 8% • Microelectronics Plating Chemistry 9% 19 CORPORATE PRESENTATION MARCH 2015 INVESTING FOR GROWTH 20 CORPORATE PRESENTATION MARCH 2015 Investing for Growth Routes to Market • OEM, Technical Support, R&D teams + The Benefits • • Product Development • New products and new markets + Accelerate growth Increase market share • New high growth markets • High margin products Capital Expenditure • Manufacturing and R&D facilities TARGETED INVESTMENT PROGRAMME ALIGNED TO OUR COMPETITIVE ADVANTAGES 21 21 CORPORATE PRESENTATION MARCH 2015 APPENDICES 22 CORPORATE PRESENTATION MARCH 2015 Alent history TODAY A MARKET-LEADING SPECIALTY CHEMICALS AND ENGINEERED MATERIALS COMPANY 2013 – 2014 • Consistently outperformed end-markets • Delivered strong cash generation • Alent plc listed on the London Stock Exchange in December 2012 • Constituent of the FTSE250 - Specialty Chemicals Sector • Significant period of growth • Net sales value +21.9% / Return on net sales value from 13.0% to 21.8% 2003 - 2007 • Disposal of several non-core businesses (equipment, laminates, EMC) 1999 • Acquisition of Enthone Inc., the #2 global supplier of electroplating chemicals 1990s • The electronics “boom” in the early 1990s provided opportunities to acquire further electronics companies 1985 • Alpha expansion into Asia 1984 • Acquisition of Alpha Metals Inc., a supplier of interconnect materials to the electronics business 1944 • Cookson acquired Fry Metals 2012 2008 - 2011 ALPHA & ENTHONE - #1 or #2 GLOBALLY RECOGNISED BRANDS 23 CORPORATE PRESENTATION MARCH 2015 Assembly Materials – Product lines Surface Mount Assembly – Products for use in electronic equipment • • • • Solder paste - Using a stencil to place small deposits of solder onto a printed circuit board Wire solder - Used in touch-up and rework applications Preforms - Solder components engineered into specific shapes/forms Stencils - Used to apply adhesive and solder paste onto a printed circuit board Wave Solder Assembly – Products for use in electronic equipment • Bar solder and flux – Used in mature wave soldering process Microlectronics – Products for use in semiconductors • • • • Electronic polymers – Used for packaging, sealing and conductive adhesives Solder spheres – Used for integrated circuit and printed circuit board connections Die attach – Used to attach the semiconductor chip to the package PV ready ribbon – A pre-fluxed solder coated copper ribbon used for connecting solar cells within a solar panel Other • • Reclaim – Metal recycling business – reclaim of waste solder, reused in solder processes Water treatment – Produces chemicals for industrial end-markets 24 CORPORATE PRESENTATION MARCH 2015 Surface Chemistries – Product lines Performance Coatings – Products for use in industrial/automotive end-markets • • • Decorative coatings - Decorative electroplating chemistries developed to enable plating directly onto plastic in industrial and automotive markets Wear resistant coatings - Chromium electroplating chemistries used in industrial applications and for use on auto parts such as engine valves and shock absorber cylinders Corrosion resistant coatings - Zinc alloy electroplating chemistries used in industrial, building and auto markets (e.g. on brake calipers and fasteners) Electronics • • • Copper damascene - Electroplating chemistry used to create the wires within a semiconductor integrated circuit chip Wafer bumping chemistries - Electroplating for connections within the integrated circuit Interconnect materials - Electroplating chemistries for fabrication of printed circuit boards 25 CORPORATE PRESENTATION MARCH 2015 Automotive Auto Electronics Steering Wheel Trim Critical safety systems (ABS, airbag) Interior Console, Bezel Trim, Knobs Head lamp Reflectors Emblems Shifter Knob Interior, Exterior Door Handles Body Side Moulding Side View Mirror External lighting Cabin electronics Communications system Underhood controllers Electronics Entry/exit security Front Grilles Climate control Bumper Performance Coatings Aluminium Wheels, Plastic Clad Wheels Decorative External Lighting Underhood Controllers Cabin Electronics - Communications System Entry/Exit Security Critical Safety Systems (ABS, airbag) Internal and external Anti-wear Corrosion resistance Climate Control 26 CORPORATE PRESENTATION MARCH 2015 Electronics Assembly Materials Solder paste Solder spheres Camera Modules Accelerameters Microprocessors Preforms Wire Die attach adhesives Printed Circuit Board Surface Chemistries Copper damascene Molded Antennas Semiconductor wafer level packaging Printed circuit board metallisation Printed circuit board final finishes Molded interconnect devices 27 CORPORATE PRESENTATION MARCH 2015 Growth markets - Automotive World production of electronic equipment % growth rates Converted at 2013 exchange rates 4.6 Automotive production growth in units (m) 105.3 5.1 3.3 83.1 85.6 2013 2014 -3.0 2013 2014 2015 2016 2016 2017 2018 Source: Prismark Partners, November 2014; IHS Automotive, January 2015 Source: Henderson, January 2015 • Global automotive production expected to grow above historic rates driven by emerging markets 2015 • The electronics content within a vehicle is growing at a rate that significantly exceeds the underlying automotive unit growth rate • • Electronics content within a vehicle growing at an even higher rate • 28 Electronics value is on average ~US$2,000 per automobile today Electronics content as a percentage of the total vehicle cost is expected to rise significantly as market penetration of hybrid and electric vehicles increases CORPORATE PRESENTATION MARCH 2015 Growth markets - Electronics 2018F – Total: $2.0b 2013 – Total: $1.7b Smartphones $341b/17.0% Smartphones $288b/17.2% Tablets $78b/4.6% Rest of the Electronics Industry $885b/52.8% 3.7% CAAGR Servers/Storage/ Comms.Infra $249b/14.8% Tablets $111b/5.5% Rest of the Electronics Industry $1,019b/50.8% Servers/Storage/ Comms.Infra $305b/15.2% Automotive Electronics $177b/10.6% Automotive Electronics $231b/11.5% 2013-2018 CAAGR Smartphones 3.4% Tablets 7.4% Servers/Storage/Comms.Infra 4.1% Auto Electronics 5.5% Rest of Electronics Industry 2.9% TOTAL 3.7% Source: Prismark Partners, March 2014 29 CORPORATE PRESENTATION MARCH 2015 Investing for Growth Routes to Market • OEM, Technical Support, R&D teams + The Benefits • • Product Development • New products and new markets + Accelerate growth Increase market share • New high growth markets • High margin products Capital Expenditure • Manufacturing and R&D facilities TARGETED INVESTMENT PROGRAMME ALIGNED TO OUR COMPETITIVE ADVANTAGES 30 30 CORPORATE PRESENTATION MARCH 2015 Routes to Market and Product Development • £7m investment/increase headcount by around 100 people • Additional OEM headcount with focus on Asia • Additional R&D headcount with focus on India and US – Solder paste for new packaging applications – Engineered polymers for die-attach – Performance coatings for enhanced processing in wear and corrosion resistant products – Copper damascene for latest nodes – Copper development for functional decorative coatings The Benefits • Additional technical support in all regions + Capital Expenditure TARGETED INVESTMENT PROGRAMME TO SECURE PROXIMITY TO CUSTOMERS 31 31 CORPORATE PRESENTATION MARCH 2015 Capital Expenditure • 2015 CAPEX of 1.5 – 1.8x depreciation • Invest in manufacturing capability – US • Wafer level packaging • Copper damascene process line – Asia • Powder manufacturing capability The Benefits • Invest in R&D equipment with a focus on high margin products – Die-attach, LED and nano silver in India – Wafer fabrication research in the US – Coating development equipment in Europe + Routes to Market and Product Development TARGETED INVESTMENT PROGRAMME ALIGNED TO OUR COMPETITIVE ADVANTAGES 32 32 CORPORATE PRESENTATION MARCH 2015 The Benefits Routes to Market The Benefits + • • Product Development • Accelerate growth Increase market share • New high growth markets • High margin products Continued outperformance of end-markets The Timing • Expect benefits to start in 2016 • Full NSV growth benefit in 2017 + Capital Expenditure TARGETED INVESTMENT PROGRAMME ALIGNED TO OUR COMPETITIVE ADVANTAGES 33 33 CORPORATE PRESENTATION MARCH 2015 Group financial highlights Reported Change % 2014 2013 Reported Constant 413.0 420.1 (1.7) 4.6 (162.0) (168.7) 4.0 (2.9) Gross margin (£m) 251.0 251.4 (0.2) 5.7 Gross margin (%) 60.8 59.8 1.0 pts 0.7 pts (155.9) (157.3) 0.9 (4.6) Adjusted operating profit (£m) 95.1 94.1 1.1 7.6 NSV margin (%) 23.0 22.4 0.6 pts 0.6 pts Adjusted profit before tax (£m) 91.5 88.0 4.0 11.1 Adjusted earnings per share (pence) 25.0 24.1 3.7 Adjusted cash generated from operations (£m) 94.0 102.8 (8.6) 108.3 96.5 (12.2) 1.0 1.0 20.9 20.2 Net sales value (NSV) (£m) Manufacturing and raw material costs (£m) Overheads (£m) Net debt (£m) Leverage (x EBITDA) Return on capital employed (%) • Group NSV increased 5% - outperforming principal end-markets • Market share capture through outperformance of key end-markets • Pricing remained solid with gross margin increasing to 61% 34 34 CORPORATE PRESENTATION MARCH 2015 Segmental analysis Reported Change % 2014 2013 Reported Constant Assembly Materials 204.9 209.5 (2.2) 4.4 Surface Chemistries 208.1 210.6 (1.2) 4.7 Alent Group (£m) 413.0 420.1 (1.7) 4.6 Assembly Materials 57.6 58.2 (1.0) 5.3 Surface Chemistries 44.6 42.7 4.4 10.4 Corporate (7.1) (6.8) (4.4) (6.0) Alent Group (£m) 95.1 94.1 1.1 7.6 Assembly Materials 28.1 27.8 0.3 pts 0.2 pts Surface Chemistries 21.4 20.3 1.1 pts 1.1 pts Alent Group (%) 23.0 22.4 0.6 pts 0.6 pts NSV (£m) Adjusted operating profit (£m) NSV Margin (%) 35 35 CORPORATE PRESENTATION MARCH 2015 Assembly Materials Reported £m NSV Change % 2014 2013 Reported Wave Solder Assembly 49.2 54.7 (10.1) (1.0) Surface Mount Assembly 99.2 93.7 5.9 13.2 Microelectronics Products 11.4 11.5 (0.1) 4.6 Other 45.1 49.6 (9.1) (6.0) 204.9 209.5 (2.2) 4.4 57.6 58.2 (1.0) 5.3 28.1% 27.8% 0.3 pts 0.2 pts Total NSV Adjusted operating profit NSV Margin Constant • Improving trends in electronics market • Wave Solder Assembly – Continued shift from Wave Solder Assembly to higher margin Surface Mount Assembly • Double digit growth in Surface Mount Assembly – Paste volume up 10% with further progress in margins as we leverage our OEM marketing and selling strategy – Packaged preforms delivered strong growth in both volume and margin on the back of design wins in European automotive space – Wire volume up 7% driven by increased demand in Asia • Microelectronics NSV up 5% – Promising prospects in die-attach technology • Other – NSV progression in water treatment business, offset by performance of reclaim business 36 36 CORPORATE PRESENTATION MARCH 2015 Surface Chemistries Reported £m NSV Change % 2014 2013 Reported Constant Performance Coatings 97.6 100.4 (2.8) 3.3 Electronics Chemistries 103.1 101.8 1.3 7.1 7.4 8.4 (11.9) (6.3) 208.1 210.6 (1.2) 4.7 44.6 42.7 4.4 10.4 21.4% 20.3% 1.1 pts 1.1 pts Other Total NSV Adjusted operating profit NSV Margin • Modest growth in automotive and industrial markets • Performance Coatings and Electronics Chemistries segments outperformed underlying markets • Continued progress in Performance Coatings segment – PCB Chemistry volume up 6% through market share gain – Performance Coatings NSV up 3% due to stronger demand in automotive markets and market share capture • Electronics Chemistries – Copper damascene NSV increased 7.8%, driven by ramp up of 28/20nm advanced nodes – Continued progress at 14/10nm nodes with product evaluations at a number of key customers – Settlement of litigation • NSV margin increased 1.1pts to 21.4% 37 37 CORPORATE PRESENTATION MARCH 2015 Net debt £m 2014 2013 Adjusted free cash flow 64.3 73.2 Demerger costs (0.2) (4.8) Pension top-ups (2.4) (1.9) (66.3) (23.3) (7.2) 4.7 Movement on net debt in the year (11.8) 47.9 Net debt at start of year (96.5) (144.4) Net debt at end of year (108.3) (96.5) 1.0x 30.7 1.0x 22.0x Dividends paid to shareholders Other, including foreign exchange & deferred consideration Financial covenants: Net debt to EBITDA (last 12 months) ≤3.0x EBITDA to net interest ≥4.0x Facility: £300m syndicated bank facility Debt maturity extended 2 years to 2019 38 38 CORPORATE PRESENTATION MARCH 2015 Dividends 2014 2013 Change Interim (pence) 3.0 2.89 3.8 Final (pence) 6.0 5.71 5.1 Full year (pence) 9.0 8.60 4.7 2.8x 2.8x - Dividend cover • Special dividend – 15.0 pence per share, representing a total payment of £42m – Paid to shareholders on 17 October 2014 • The Board has recommended a final dividend of 6.0 pence per share – 2014 full year dividend of 9.0 pence per share – 4.7% growth over the 2013 full year dividend • Progressive dividend policy maintained – Dividend at least in line with earnings growth – Dividend cover within a range of 3.0 to 2.8 times 39 39 CORPORATE PRESENTATION MARCH 2015 Definitions The following are referred to throughout this presentation:• NSV is revenue less commodity metals (tin, silver, gold). • Adjusted operating profit, adjusted profit before tax, adjusted profit for the year and adjusted earnings per share are, where appropriate, each stated before: exceptional items; amortisation of acquired intangible assets; deferred tax on acquired intangible assets and goodwill; utilisation of deferred tax assets (where initial recognition was as an exceptional item); acquisition costs; the impact arising from the fair valuing of financial instruments; and profits or losses arising on business disposals. • Adjusted cash generated from operations is cash generated from operations after adding back £0.2m (2013: £4.8m) for demerger cash costs. • Free cash flow is defined as net cash from operating activities after net outlays for the purchase and sale of property, plant and equipment and dividends from joint ventures but before additional funding contributions to Group pension plans. 40 40 CORPORATE PRESENTATION MARCH 2015