Sustainability as a Driver of Value Creation



KEY POINTS
  • Since emerging from Chapter 11 bankruptcy in 3Q19, Hexion has been focused on streamlining its portfolio of businesses, investing in R&D and capacity to bring new value-added products to market, and strengthening its balance sheet.
  • In its 1Q21 earnings release, the company announced a new greenhouse gas (GHG) emission goal as part of its Sustainability Growth Platform that looks to reduce absolute carbon emissions by 20% by 2030 and to reduce spill mass and releases by 80% by 2025 against their 2017 baseline.
  • R&D productivity goals include increasing the percent of sales from products less than five years old from the current 20% to mid-20% with new products driving higher margins, while improving its corporate profitability from the mid-teens EBITDA currently to the high teens. Furthermore, in line with its overall strategy around minimizing the impact on climate change, all new products will feature a sustainability attribute by 2030.
  • The company looks to benefit from accelerating new construction in the US where, for the first time since the 2008-09 recession, home starts are now above the 1.5 million unit, long-term annual average. The company is also looking to benefit from this trend in Latin America, Canada, Australia, and New Zealand. Given Hexion’s leading position in wood adhesives and growing role of wood in construction, especially for emerging applications in multi-story and commercial segments, Hexion is well positioned to leverage and benefit from these trends.
  • With EBITDA recovering from 2020 lows (1Q21 EBITDA was up ~50% YOY against a still-strong 1Q20 comp) and Debt/EBITDA declining toward the targeted 3x or below levels, Hexion is once more looking to grow through M&A.

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OUR INSIGHTS

The Opportunities

Accelerating trends in Building & Construction and Remodel markets in NA, LATAM, and APAC, combined with growing use of wood products in these applications suggest a more rapid top line expansion for Hexion’s Adhesives division.

Growing use of composites in lightweighting applications for high-volume automotive platforms as well as the EV market combined with the trend toward longer and longer-lasting wind turbine blades suggest the company’s Coatings & Composites division will likewise see accelerated growth that may surprise to the upside.

The positive impact of new product sales on corporate margins is beginning to emerge, and this trend should accelerate as demand recovers, possibly accelerating the time of relisting of Hexion shares on NYSE or NASDAQ, which may help drive higher valuation multiples.

The Obstacles

Raw material and logistics cost inflation may provide near-term headwinds to margin expansion until higher costs are passed through to customers.

Renewed COVID-19 restrictions may impact Hexion’s debt-related metrics and slow the pace of post-2020 recovery.

Since emerging from Chapter 11 bankruptcy in 3Q19, Hexion has been focused on streamlining its portfolio of businesses, investing in R&D and capacity to bring new value-added products to market, and strengthening its balance sheet.

EXECUTIVE DISCUSSION

Dmitry Silversteyn: Today’s discussion will focus on sustainability and its role as a driver of value creation in the industry, particularly the chemicals and materials industry. This sector may not be the first one that investors look to for environmental sustainability and above-GDP growth. However, companies in this industry can deliver precisely that.

In fact, these companies and their products are enabling many of the sustainability-related trends that we are seeing in the world today, shaping the global economy as well as providing opportunities for growth above market and above their competitors. As a consequence, delivering above-GDP growth has become a hallmark of companies in this sector. Additionally, sustainability efforts and new product launches are helping with margin expansion.

Today, we will hear from one such company, as we welcome our guest, Craig Rogerson, who is the Chairman, President and Chief Executive Officer of Hexion...

ABOUT THE EXECUTIVE
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Craig Rogerson

Chairman, President & CEO

Hexion Inc.

Craig Rogerson is Chairman, President and Chief Executive Officer at Hexion Inc.

Craig joined Hexion in July 2017. Prior to joining Hexion, Craig served as Chairman, President and Chief Executive Officer of Chemtura Corporation, a position he held from December 2008 until April 21, 2017. Craig also served as President, Chief Executive Officer and Director of Hercules Incorporated from December 2003 until November 2008.

Craig joined Hercules in 1979 and served in a number of management positions before leaving the company to serve as President and Chief Executive Officer of Wacker Silicones Corporation in 1997. In May 2000, Craig rejoined Hercules and was named President of its BetzDearborn Division in August 2000. Prior to being named CEO of Hercules in December 2003, Craig held a variety of senior management positions with the company, including president of the FiberVisions and Pinova Divisions, vice president of Global Procurement, and Chief Operating Officer.

Craig serves as independent board chair of PPL Corporation and on the boards of the American Chemistry Council, the Society of Chemical Industry, and the Pancreatic Cancer Action Network.

Craig holds a chemical engineering degree from Michigan State University. He also serves on the Michigan State University College of Engineering Alumni Board and on the advisory board of the Michigan State University Chemical Engineering & Materials Science Department.

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