Element Solutions Inc (ESI)

Investor Day 2019

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May 20, 2019

morning, everyone. My name is Yashna Hedi, and welcome to the 2019 Element Solutions Investor Day. Before we begin, please note that during today's presentation, we'll make certain forward looking statements that reflect our current views about the company's market opportunity and anticipated financial performance. These statements are subject to numerous risks and uncertainties as described in our SEC filings, which could cause future results to differ materially from those expressed in or implied by these statements. For more information, please refer to the cautionary statement regarding forward looking statements included in the slides relating to today's presentation. Our presentation also contains financial It is now my pleasure to introduce Ben Glicklitsch, measures. It is now my pleasure to introduce Ben Glicklitsch, CEO of Element Solutions for opening remarks. Good morning, everybody. Thank you for joining. It's going to be an excellent day. We've got a thorough set of presentations and a great crowd here, many representatives of the company in the frontier and the back. We've got 3 Board members here. Just quickly on which will be served after the presentations today. It's my pleasure to introduce Martin Franklin for some opening remarks. He's here with us this morning. He's going to have to leave briefly in the middle of the day, but he'll be back later in the afternoon. Martin, please. Just in case you're thinking I'm going to something much more interesting than this later, I've got a friend who passed, so I've got a funeral. So I'd rather be here. So Element Solutions, for all of you who know the story, I think most of you do, this has been quite a journey to get to this point. And I think that we're at a very exciting time. I've always looked at this as a marathon, not a sprint. And I think finally, we've got to a portfolio of businesses that are attractive, diverse, healthy, very well positioned, leaders in their niches and with all kinds of opportunities. So I'm very excited about where we are today. This is a business that ticks all the boxes of the kinds of things that I'd like to invest in over the years, highly defensible moats, a really strong team and you're going to meet a lot of people I think that you haven't met before and see the if you like the bench strength that exists within Element Solutions. A lot of great technology, a good culture. And at the end of the day, what I think is most exciting is amazing cash flow. There aren't many businesses that you're going to find that have the sort of free cash flow characteristics of this company. I think that when a lot of people talk about multiples of EBITDA, they look at the wrong metric, the right metric to look at any company, let alone this one, is the EBITDA minus CapEx type of metric. And I think what you'll find is when you look at it on that basis, not only is this an undervalued company, but a company that over the long term has a great deal of optionality with what to do with its free cash flows. This has been a very busy time to get to the point where we are today. In other words, you've seen a lot of management changes, all of which really been internal development, which I'm excited about. We have a number of our directors here today, including Rakesh Sashdev and Michelle Meydar Elliott and I think Mike Goss is here as well. So it's nice to have some of our directors represented. There are a lot of avenues to create value in this company. Hopefully, what you're going to see when you leave this place are some very simple punch lines, which is look at the end markets that people are using. We are growing our share of the units in those end markets And we have the products and the technologies and the positioning to take full advantage of that. That at the end of the day is, if you like the magic bullet that exists inside this business. What you'll find is that we have a team that's driven, performance based, as I say, a great depth of organization. And at the end of the day, a company that will generate a lot of cash and will have the opportunity instead of using it to pay off heavy debt loads, we'll have the opportunity to make the choices of whether it's going to be a more traditional dividend payer, an aggressive repurchase of securities as it has been recently or an acquirer. Anyway, you'll make that judgment for yourself during the course of the day. I'm very excited for this team to be presented. I'll be back later on in the afternoon. I'll stick around for a while now and I'll hand it over to Ben to talk about the company. Ben? Martin was speaking to this slide here, for those of you who were wondering at his opening remarks. So introducing Element Solutions. Element Solutions is a global diversified specialty chemicals company that provides a wide breadth of solutions to a broad base of customers around the world in primarily the electronics and industrial end markets. We have about $2,000,000,000 in sales split 30% in the Americas, 30% in Europe and 40% in Asia. And that's supported by a global network of about 40 facilities and 4,500 employees, all of whom are critically located close to our customers. We bill our customers for products, but what we're selling is technology and service. Our products themselves are manufactured in relatively simple formulation based processes. So the asset intensity, the capital intensity of this business is quite modest. What the customers are buying is quality, reliability, technology, know how and service that translate into better outcomes for them and for the products that they're manufacturing towards. The value proposition translates into stable, high margins. So EBITDA margins north of 20% and even more stable and compelling cash flow. The business is organized in 2 segments, our Electronics segment, which is about 60% of sales and our Industrial and Specialty segment, which is about 40% of sales. But it's highly diversified across multiple end markets within those segments and also diversified across customers, products and generally end markets and inputs. Importantly, each of our businesses have leading market positions in the markets in which they participate. They have strong technology, healthy customers and end markets that are supported by long term secular growth trends. We have 3 goals today with our Investor Day. The first is to communicate the quality of these businesses. These are great businesses and the comments over the course of the day will support that assertion. The second is to put some stakes in the ground, financial objectives, what are we working towards, put some stakes in the ground to show what this business can do and commitments on what we'll deliver over the medium term. And the 3rd and equally important is to demonstrate the quality of our team. We have an excellent, excellent team. We have a deep bench. We have subject matter experts and thoughtful strategic leaders. You're going to hear from 12 people today, which is a lot more than you would at a conventional Investor Day. We think that will be demonstrative of the depth of our bench and the quality of our team. The team is balanced between very experienced leaders in these end markets and creative thoughtful fresh thinking strategic leaders. What that allows for is the ability to challenge existing assumptions, bring creative approaches to things we've been doing, while retaining a sensitivity to the core of the business, which is the customer and innovation. Fundamentally, we have a people based business. When we say our customers rely on us, they're not relying on some intangible company. They're relying on specific individuals. Our innovation team is innovating on existing products that they've developed. It's incremental development. Our customers rely on our technical service people. These are people with names and faces that show up at their facilities every day and ensure their manufacturing processes go well. So while you've seen a transition in senior leadership of this company and its predecessors, the core operating team here has really been quite stable and the new leadership team has established quite a good operating rhythm instead of relationships. We've quickly become a single company, an operating company and we've built bridges to unify what had been the parent holding company and the operating company. We've also built bridges between the segments and you'll hear a lot today about collaboration across the segments to bring better opportunities to market in pursuit of commercial opportunities and excellence. We have alignment on our priorities. We have been working towards establishing a robust culture, a performance based culture which we'll talk about. We have strong communication and we're really operating as one team it's an excellent one at that. So what are we trying to accomplish at Element Solutions Inc? Our maxim is chemical technology enabling performance and innovation. We really think of ourselves as a technology company, as a chemical technology company and we support with our technology the performance and innovation of our customers' products. We're innovating to enable the next generation of our customers' technologies and our customers' products today rely on our technology to perform. Our vision is a results driven, customer centric and people oriented company that focuses on innovation and customer service to drive value for customers and shareholders and opportunities for our own people. This translates to operational excellence, which should create strong cash flow, which we will invest prudently to compound shareholder value. We aspire to be nothing less than the best in class specialty chemicals company and we believe that we have measurable performance objectives that can quantify that. Returns on invested capital, voice of customer surveys to demonstrate customer satisfaction and internal growth metrics to demonstrate progress from our global employee base. The way we get there is through 5 strategic pillars. The first is commercial excellence. We need to know where our customers are going to enable their next generation of technology. We need to be close to the customer to make sure the products that we are providing are meeting their needs. Customer proximity and delivering excellence consistently is a way to win more than our fair share of business. The second is market leading innovation. By bringing together these businesses, we've become the market leader in the markets in which we participate and we have no excuse not to be on the cutting edge of technology. We participate in markets that are constantly innovating and our technology should be on the cutting edge that enables the products that we are servicing to innovate. By being on that edge, we'll win more than our fair share of business and at high margins. The third is enabling sustainability. And sustainability and environmental concerns are existential issues not just for our industry, but for our customers. And by working to provide more sustainable solutions for our customers, we will not only win more than our fair share of business, but we'll keep them in business in many cases. We have a case study, a few case studies about that. Sustainability is a very, very important push for this company. The first three of our pillars are commercially oriented and the next 2, the last 2 are really internally oriented. The first of those is decisiveness and action orientation. Nature and empowering our people to be decisive and to take action will be critical to enable them to meet the needs of their local customers. We should be able to be an action oriented company and a decisive company pushing our people to make decisions and drive positive outcomes towards customers. Bureaucracy gets in the way of that. The decisiveness in action orientation is oriented towards elimination of bureaucracy and driving our people, empowering our people to act swiftly and commit to the right decisions. And the last is recruitment and talent development. As a people based business, the way for us to win is simply to have the best people. Now what we do is not something you learn in school. So it's not simply an exercise in recruiting great people. It's bringing in great people, retaining them and growing them, which is something that our culture is highly dedicated towards and it's part of Element one of the changes we've made in Element Solutions to become extremely people oriented and talent development focused. One item that's not explicit in the strategy, but important to note is capital allocation And we'll spend a lot of time on that today. What I'm hoping is clear from these strategic pillars is that we're an operating company and not a platform. Our strategy is to run excellent businesses very well 1st and foremost. We have a detailed framework for capital allocation and a key part of our value creation is deployment of the excess cash flow from these businesses. We'll talk about that more later, but in summary, we will invest conservatively to support our businesses and return capital to shareholders with an eye towards compounding intrinsic value. So strategy is words. So we wanted to spend a little bit of time to give some examples of what this strategy looks like in action. So we have three examples I'll take you through. The first is supporting higher reliability standards for 5 gs technologies. So 5 gs has become a buzzword and there's a lot of noise in the market about it and commercialization is coming around now and into the next year or so. But it's something that from a technology standpoint we've been working towards for many, many years. What 5 gs requires from an infrastructure standpoint is more dense small base stations with much more demanding circuitry requirements. And similarly, 5 gs enabled devices require much more demanding circuitry. What does that look like? That looks like much denser and thicker circuit boards with high frequency, low latency connectivity. By understanding what our customers were driving towards, being close to the customers and understanding their technology roadmaps, we understood what the requirements would be for these devices in advance and have spent a lot of time innovating towards solutions that enable this technology. Let me give you an example, a real example from a product standpoint. You have thicker circuit boards, you have an issue with adhesion holding them together. And the way you solve adhesion in many cases is by making the surfaces more rough, so they stick together better. But that roughness interferes with the high frequency communication that's required within the circuit board for 5 gs applications. So we developed a product called NanoBond that allows for much better adhesion of circuit boards without that rough surface treatment. So in other words, our technology is effectively enabling the requirements for 5 gs. Next example is a great one and that's the elimination of hexavalent chrome in plating processes. So in 2007, European REACH legislation banned certain hazardous substances and one of them was hexavalent chrome. It's used in the surface preparation for plating technologies in many, many industries, but in primarily very frequently used in the automotive industry. There's a loophole in reach, which suggests that if there's not a viable alternative to a banned substance, that substance can continue to be used. So all of our competitors banded together and said there's no viable alternative to hexavalent chrome. It's such an important part of such a critical industry in Europe and they didn't work towards any adherence to the new legislation. But we went out and developed a product that eliminates hexagonal and chrome from this stage in the preparation of surfaces for chrome plating. And that product through iteration with our customers to deliver on their needs by being close to the customers, making sure that the product really met the stringent requirements for quality has created a market. And now hexavalentrome is going to be banned in Europe and we are the market leader through this innovation. We have enabled sustainability and pushed environmental friendliness into the market. We have effectively created an alternative to the market choice that enables REACH legislation to be effective around this product. The third example is an internal one, which was the post separation reorganization. In conjunction with the close of the sale of Arista and the launch of Element Solutions, we very, very quickly reorganized, de layered, managed cost, created a culture and built the bridges I was talking about earlier on the leadership team. We had pre wired thoughts around what our culture should be, spent a lot of time as a go forward leadership team thinking about our strategy, built a talent development framework and program to roll out globally and really become one company. There's a reinvigorated focus on people. We're delivering on our cost objectives quickly and we've realigned incentives to match with what we anticipate with what we aspire for Element Solutions to be. That's action orientation, that's decisiveness and that's talent development and people orientation. So what does this all mean from a financial perspective? As we talked about, our goal is to compound cash flow through operational excellence and prudent capital allocation. And there are just a few steps that allow us to do so. The first is above market organic growth. We've spent a lot of time looking at our revenue and attributing it to certain markets. We believe our weighted average market growth somewhere between 2% 3% and we're confident that we can grow faster than that by a point or 2. The second is margin expansion. In connection with that growth, we should expand margins and we'll talk to you about the reasons why. And the third is taking the robust cash flows that these businesses inherently generate and allocating them prudently to compound value, positioned for profitable growth. So how are we going to grow faster than our markets? Fundamentally, our business has lived on the cutting edge of innovation. Our circuitry technology started with simple circuit boards, which at the time were quite complex for televisions. Then we progressed and innovated towards laptops, desktops first, laptops, then mobile devices. For the past 10 years or so, mobile devices have been a tremendous growth driver and contributor to our performance. But there's always an emerging trend. There's always an emerging technology. And as we talked about, we are market leading innovators. So we will disproportionately benefit from those emerging trends. Things like automotive electronic content, that's a long story. The reliability of requirements and the complexity of those circuit boards are fundamental and far in excess of what you see in mobile devices. Similarly, 5 gs, which we just talked about and you'll hear more about in the Internet of Things, the proliferation of circuit boards and computing power around us. The other real megatrend, trends that are not going away that are secular in nature is environmental. And we've got a lot of products that are oriented towards that and be becoming more sustainable. It aligns with our strategic pillar of enabling sustainability. So these are markets that are growing much faster than the overall industry, which still has quite a bit of content for lower end legacy technologies. And we're positioned through our innovation, through our technical service to win a disproportionate portion of these new technologies, which come at higher margins because complexity and reliability requirements translate into better profit for us. Over and above that margin expansion, we have operational excellence opportunities, continuous improvement. The first is around scale and procurement. These businesses grew up very locally and that's very important because as we've talked about being close to the customer, enabling the customer on a local basis and serving their nuance needs is essential to our model. That having been said, having a local sourcing decision isn't. And so we haven't taken advantage of our scale from a supply chain perspective yet to drive margin. That's something that Mike Goralski, our Head of Supply Chain is going to be talking about and represents a material opportunity to improve our margins. Similarly, we've just got a nimble supply chain, low fixed cost manufacturing and a lot of opportunities to optimize with the benefit of scale. The 3rd pillar of margin expansion is around an efficient operating model and there are really 2 parts to this. The first is just like our supply chain, our G and A infrastructure has historically been very local. We're not taking advantage of our scale. And Carrie is going to talk to you about shared service optimization opportunities, technology implementation to drive cost out of G and A, which represents a material tailwind to our margin. At the same time, most of that G and A is fixed infrastructure and can support a much bigger business. There should be operating leverage as we grow to drive margins even further. It's really hard to quantify the impact of culture financially, but it all starts and ends with culture. And it's something that I've been very, very focused on as I think you've heard from my remarks thus far at Element Solutions, establishing a culture that's performance based, people centric and ownership oriented. As a leadership team, we came together and developed this framework of the 5 Cs of our culture and I won't take you through all of it yet. But the folks around the room at the company have heard it over and over again over the past few months. And if I could pick 1 C to dwell on, it's choose. We believe fundamentally in the power of choice and the fact that all of our people around the world make choices every day. And this is a business where their choices every day can make our business better. So by pushing an ownership orientated culture through this organization, empowering our people to make decisions and instilling a sense of the priorities for this company, we'll be in a position to drive this business forward and I'm highly confident that this performance based culture will at the end of the day be a driver of outperformance both from a growth perspective and from a cost and margin perspective. Since we brought these businesses together in 2016, they've had exceptional financial performance. We've grown 5% on an annualized basis on the top line, which is in excess of the markets that translated to 7% EBITDA growth and 15% free cash flow CAGR. That sort of operating leverage is inherent in this business. It is not a capital intensive business. It has compelling incremental margins and it generates robust cash flow. There's no reason to believe that those characteristics change whatsoever on a go forward basis. So what does that translate to? And what is how do we think about what we do with that robust free cash flow? It starts with disciplined capital allocation. We talked about operational excellence and prudent capital allocation. Those two things together are what will allow for us to meet our financial objectives. We have strong and stable free cash flow generation and we're fortunate to have flexibility around what we do with the cash that we generate. We will continue to invest in this business, but the business really requires very modest investments to grow. It doesn't require meaningful capital to grow or to maintain its margins. That investment is in the form of people and in the form of R and D. And necessarily over and above that the business is going to generate excess cash flow. We'll consider strategic acquisitions, but those acquisitions will be to bolster our existing businesses, accelerate organic growth in markets that we deeply understand, businesses that we have synergies from. It will take the form of technology, products, geographies, businesses that align with our strategic priorities and with our existing operating units. At the same time, we'll also return capital to shareholders. You've seen us aggressively buying back shares in the past few months. We'll continue to do that. It's the most efficient way of returning capital to shareholders, but we'd also consider a dividend if we deem that to be the right thing to do in the future. So I talked about 3 objectives, quality of the businesses, quality of the people and putting marks in lines in the sand about what we can do from a financial perspective. And simply put, our goal is to double our adjusted EPS from 2018 to 2023 to $1.36 We believe we have a clear pathway to doing this. 1% to 2% organic growth in excess of our markets, converting that at more than 1.5 times, deploying that excess free cash flow in smart and prudent ways, and importantly keeping our leverage below 3.5 times. And we believe that this will also allow for us to improve our returns on invested capital every single year. So with those introductory remarks complete, I will turn it over to our President and COO, Scott Benson to take you through the businesses in a little bit more detail. Scott? Good morning. I'm extremely happy to be here today, and have a chance to speak with you. I've been at what is now Element Solutions 20 years, having served multiple commercial roles primarily across most of our business segments. So the new structure of the company is extremely exciting for those of us that have been here for quite some time. It brings us a focus that we haven't had over the past few years as Martin talked about. And I think you'll see that the future for the company is extremely bright. What I'm going to do this morning is take you through a little bit about our business model, our segments and our end markets. I think you'll hear more in detail about all of these a little bit later this morning, but I wanted to give you a little bit of background on those. Although our markets are quite diverse, our business segments share many key characteristics. First of all, everything begins with market driven innovation and I'll go into that in a little bit more detail in a minute. We couple this market driven innovation with ongoing post sale technical applications and on-site customer support. All of our businesses serve global markets with a balance of revenue and customers around the world. Each business supplies multiple products and solutions into the markets that they serve and all also share a low cost manufacturing operation that is extremely flexible. We are able to expand capacity with little CapEx investment. Here you can clearly see these common characteristics. I would like to highlight a few of these. Our businesses are generally number 1 or number 2 in the markets that they serve. Our markets have all have good long term growth within their end markets. All have market adjacencies, which also may provide future growth opportunities. All of our businesses sell repeat consumable products versus capital equipment, for example, which is a one time sale. All represent a very small portion of the overall cost for our customers, but our products and solutions are integral to the functionality of what customers produce. All of our businesses are focused on innovation, applications and on-site customer technical support. I'm sorry, there was a time where I'd have been able to remember all this, but I can't anymore. We have a portfolio of what we very balanced portfolio. We consider it a very balanced portfolio. Here you can see the breadth of our end markets, everything from automotive to mobile devices to consumer packaging to the energy segments. This breadth provides us protection against single market or industry downturns, but also provides broad opportunity and areas for growth. It also provides opportunity for future potential investments. Our revenue is also balanced across the globe coming from mature and emerging markets. Here's a further breakdown of our segments. As you can see, we sell and develop many products and solutions into all of our end markets. This allows us to create very deep relationships within our customers because we supply many of the things that they require, but it also allows us to develop a really deep understanding of the industries that they're serving. It enables us to gain deep technical to gain deep technical understanding of the needs and trends within their end markets. And all of this gives us the opportunity to really become a valuable asset asset to our customers rather than just a supplier. So how does all of this happen? There's a lot of information on this slide, but I'll try to walk us through this in an understandable manner. So all of our segments we work in multiple directions. What we call is multiple touch points within our end markets. We work directly with OEMs, for example, to gain and even in sometimes create specifications. This information is used to innovate and develop solutions to meet these specifications. Then we take these innovation ideas and we create what we call wet process chemistries. These solutions all begin with basic raw materials. We are not a synthesizer of chemistries. We are a formulator and a blender of chemistries. These basic raw materials and formulations local local technical sales and service experts that our customers value these teams extremely highly. The local experts that we provide enable our customers to use the products in an efficient manner and make sure that their materials are functional when they leave. I'd like to show you a couple of key industry segments where our broad base of touch points can be clearly seen. In mobile devices, as complexity increases, the need for broader solutions increases. The combination of The combination of all of our technology allows us to participate in almost every aspect of the device manufacturing process. If you look at all the call out boxes So So that enables us a tremendous understanding of what has to happen in order to make a functional phone. And then understanding how all of those products and processes interact with each other is key to delivering and meeting the needs of the customer. We think that no single competitor in our space has as many touch points in this process as we do. In automotive, cars themselves are driving change. I don't know how many people in the room remember when seatbelts, example, were an option. But the car has changed a lot. Now your kids will complain if the Wi Fi in your car doesn't work, right? So going from where seatbelts were an option to mobile display screens, Wi Fi, driving systems, safety systems, electric vehicles, global supply chain requirements. All of these needs are examples of the benefit of multiple touch points. And again, we think we're better positioned than any single competitor that we face with the number of touch points that we have in this market. Now I'd like to take you through a little bit of detail on our manufacturing and technical application structure. We utilize central R and D centers, allowing us to leverage the knowledge and expertise of the combined businesses. The structure that we have after combining all these businesses between the former McDermott, the former Entho and the former Alpha businesses gives us a breadth of technical expertise that none of these businesses ever would have been able to assemble on their own and we now try to leverage those across all of our business segments. We have a network of global application centers that take what is developed from these R and D centers and customizes them to meet very specific needs within different regions or different markets. Our manufacturing locations are near our customers. This gives us the ability to scale up or down. We can easily add shifts or remove shifts, for example, to increase capacity when needed. All of this is at a low capital investment. I think it should be highlighted that overall our facility footprint is extremely As I stated, we develop wet processes to meet our customers' demands. If you're looking at this chart, all the highlighted areas, the colored areas are areas of chemistry used in a process to manufacture a printed circuit board and all represent areas where we supply products. This example is for a gold plating process that we call Affinity. This process protects critical areas of a printed circuit board and allows for future component assembly. Every single one of the areas you see here is a possible area of failure within a customer. Not only is the chemistry important, but having expertise in how the equipment operates with the chemistry is also We couple the complex solutions that we develop with our equipment expertise to ensure reliable operation for our customers. This process along with many others is a very small percentage of the overall cost of a printed circuit board, but is essential for the functionality. In our automotive business in our industrial automotive business, we have taken this even further. Here you see a complex process as well. This is for the application of zinc as an anti corrosion coating for automotive. We developed a program in conjunction with OEMs to ensure quality and functionality across their entire supply chain. And this is around the world. We actually work directly with our customers and in our customer locations to certify them to these standards that the automotive companies rely on so that they know that they're going to get quality parts anywhere in the world that they order from through approved suppliers that we help maintain. From our customer perspective, this gives them access directly into OEMs to expand their market as well. So it's a joint this is that multiple touch point thing that I spoke of earlier. So it's been working with the OEMs and working with our customers to benefit the entire supply chain. I'd like to talk a little bit to you about how we think about and manage our innovation and our service. Our innovation in R and D is driven by customer and industry needs. We are focused on real time opportunities in our development process. We, for example, don't develop products and then look for a market. We listen and interact with customers, OEMs and peers across all of our supply chains. We use central R and D as I've talked about to allow for leverage of the skills across our business units and also to help protect our IP once it's developed. We also think of innovation not only as the formulation creation, but as a combination of research and development applications and service support. It is this combination that creates and delivers innovation to our customers. As technology requirements increase, so does our opportunity to introduce higher margin solutions to our customer base. Here you can see how our commercial and technical teams work within the technical specification process. Our automotive team, for example, works closely to manage programs not only externally with the OEMs, but internally through our innovation process. Our technical team works to help write and create specifications in their industries. And then finally, our teams develop processes to ensure quality parts are delivered using specified processes. Finally, I'd like to summarize a little bit, and discuss again how our innovation and technical service groups and how they interact. Again, we work from a central R and D function that pulls information from the field, that pulls information from industry and from end user groups. Our innovations team is working in these central groups to formulate and develop solutions, leveraging the experience of this broad team and then controlling our intellectual property in the process. We place regional application centers around the world. These are staffed by experts whose entire job is to design or is to develop the formulations that are created in R and D to meet sometimes in some cases very specific customer end user requirements, more generally regional requirements or industry requirements. So it's an extension of our R and D capability. We then support these processes directly at the customer with local experts. This is the key to the long term stickiness of our business. These local experts are viewed as being integral to our customers' operations. They do not understand how all the interactions in these processes work. Matter of fact, they don't even want to. They just want them to work the same way every day and that's what our broad base of local technical experts ensures. With that, I thank you and I'm happy to introduce Joe D'Ambrizzi, Vice President of our Electronics business and he will take you through our entire electronics portfolio. Thank you. Thank you, Scott, and good morning, everyone. It's a pleasure to be here with you all this morning, And I'd like to first take this opportunity to briefly introduce myself. I am a 35 year employee with Element Solutions and its legacy organizations. I began my career as a technology specialist in 1984 with what was then McDermott Incorporated and have spent the majority of my career in innovation management and in product and marketing management. Now very recently, we've taken all of the electronics facing businesses of Element Solutions and combined them into 1 global integrated electronic solutions provider that we call McDermott Alpha Electronic Solutions. And this business vertical represents roughly 60% of the overall sales of Element Solutions. From a very high level perspective, McDermott Alpha shows a healthy and consistent revenue growth outpacing the industry. And in addition, our percentage EBITDA contribution growth exceeds our revenue growth, which demonstrates our focus on high margin technologies and on operational efficiencies. We're diversified in revenue dependence among the electronics industry sectors, but as you would expect, we are significantly larger in Asia where most of today's electronic devices are built. To make it easier for our customers to understand and for the electronics industry to understand exactly what it is we do, we've organized our business into 3 discrete divisions that you see here on the slide. And these three divisions roughly correspond to the fabricators and manufacturers that each division serves in the electronic supply chain. Our Semiconductor Solutions division serves semiconductor fabricators and semiconductor packagers. Our Circuitry Solutions division serves you'll hear some additional detail about these divisions in the coming slides. Now it's been the acquisitions of McDermott, Allent and OM Group Assets that have given us the ability to form this integrated business. Platform's first acquisition, the legacy McDermott organization was a leading supplier to printed circuit board fabricators and the Elant and OMG acquisitions that followed not only broadened our products and strengthened our position in printed circuit board fabrication, It also gave us market leading positions in semiconductor fabrication and semiconductor packaging and in printed circuit board assembly. And it's this collection of technology offerings and our direct interaction with the entire electronics manufacturing supply chain that makes McDermott Alpha really unique in the industry that we serve. The specialty chemicals and materials provided by these three divisions along with the knowledge and experience that comes from a combined heritage of over 350 years in the industry enables the construction of today's leading edge electronic devices. There's quite simply no other supplier in the industry that has this breadth of capability and experience. We're going to spend a few minutes talking about each of the divisions within McDermott Alpha Electronic Solutions and since my career began as a technologist in the Circuitry Solutions Industry, I'm going to describe what we do in our Circuitry Solutions division and how and what sets us apart from other suppliers in that industry segment. First though, I'm going to take everything that I've learned in the last 35 years in printed circuit board manufacturing and condense it down into 60 seconds for all of you. So stay tuned. So to take something like this, which is 2 layers of copper separated by an insulating layer and to turn it into something like this, which is a finished printed circuit board ready for attachment of components is largely a series of multi step chemical process solutions that our Circuitry Solutions division provides to printed circuit board fabricators around the world. And you can think of this printed circuit board as really the foundation of an electronics device. It's the carrier of all of the components that are going to be attached and assembled into a finished electronics assembly. Our solution for this can be grouped into 5 functional categories that you see here on the board, which roughly follow the manufacturing sequence of a printed circuit board fabricator, which are our direct customers. The circuit board begins as a sandwich of conducting materials, 2 layers of copper with an insulating layer of material in between. Circuit formation refers to a series of chemical processes to clean, form an image and etch individual circuit patterns on those individual layers. We focus our resources on specialized high technology areas of circuit fabrication where customers are willing to pay for our proprietary formulations. As an example, our multi bond technology has a leading position in adhesion promotion treatments to join many layers of circuitry together into what is eventually a multi layer printed circuit board and to make sure those layers stay together throughout the life of the product. After these multiple layers are laminated together, they need to be electrically joined. To connect them, our customers form vias, which are essentially holes in either one or all of the layers of the electronics device. Our black hole and M system copper systems are part of our circuit layer connection technologies that form reliable conductive connections between these layers in high productivity automated equipment. The outermost layers of circuitry require the buildup of precise thicknesses of copper to carry the necessary electrical current at the specified signal frequencies with tightly controlled impedances. Now if all that sounds really complicated, it's because in fact it is. There's really a surprising variety of methods used to deposit copper on complex circuit structures, all to meet a surprising number of continually evolving specifications. So world class expertise both in chemistry formulation and in applications expertise is again something our customers are willing to pay a premium for. VIAFIL and MacUSPEC, trade names for our copper metallization technologies are used in some quantity in nearly every major supplier of smartphones that we all use today. Once the copper circuitry is complete, we deposit solderable finishes to protect the circuits for shipment to the assembly shops where components are assembled on the circuit boards using products from our Assembly Solutions division. Historically, thin metal or organic coatings were absolutely fine for this application, but demands on surface finishes have grown into a need for a diverse set of offerings. So today nickel gold coatings like our affinity process that Scott just described provide precious metal durability and long shelf life. Silver coatings like sterling are best for high speed signals, tin coatings like Ormicron are preferred for automotive applications and organic coatings like Entek provide predictable solderability at the lowest total cost of ownership. The last category of emerging circuit designs encompasses some circuit metallization technologies outside the mainstream of a flat rigid printed circuit board. We modify our processes for use by manufacturers of circuitry on 3-dimensional molded plastics and other non traditional materials. In some cases, these are niche applications fit for purpose. In other cases, we work together with our customers to produce circuit designs that could become disruptors in the way circuits are built. These designs not just hedges against obsolescence, but we view them as opportunities to lead rather next generation circuit designs. And finally, all of these products I've listed share some common attributes. They're differentiated, they're difficult to commoditize and they require extensive applications expertise. And all of these attributes produce the high margins that we continually strive for. So what sets us apart from other suppliers in this market space? First, we have a deep bench of chemical specialists who provide on-site expertise to our customers, which is in keeping with what we call our high touch business model. Circuit boards are increasingly complex. Building them requires essentially an ecosystem of experts. Cars are well positioned globally. They all speak the local language and they're all connected to a system of continuous training. Our moat here is comprised of our employees, applications and technical service expertise, which takes years to develop. We also believe we have best in class technology solutions focused around high value leading edge market opportunities. This is the consequence of innovation driven by the specific needs of our customers and by the technology trends that we see in today's market. Our path to market begins with our direct customers, the global fabricators of printed circuit boards. There are more than 1,000 or so direct customers comprising a significant majority of our revenues. But our job doesn't stop with just these companies. Together with our sister divisions, we work up and down the supply chain with contract assemblers who solder the circuit boards, with box build companies who complete the construction of end use devices and with OEMs who design and market the end product. Coordination of this supply chain is an important service we provide our direct customers to assure them that we understand the needs of the OEMs in the supply chain and respond with timely innovation that provides them with the right solutions that will meet the needs of their customers, the contract assemblers and the OEMs. Here, as with our network of technical service staff, scale is important. Our global presence augmented by our sister division's penetration replicate. A potential competitor would require many years and astronomical sums in investments to be credible in matching our path to market advantages. And finally, we are very bullish on the drivers of growth in our industry. The increasing complexity of devices, as Ben described earlier in his opening comments and in the various case studies he presented, we'll continue to drive the adoption and the need for our higher end chemistries. We see very clear growth drivers in big data, the need to generate, measure, transmit, store and access huge volumes of information. And of course the explosive growth of electronic content in the automobile will continue right up until the day that autonomous driving becomes a reality for all of us. And both of these opportunities will be enabled by the continued rollout of 5 gs technology that Ben described earlier. Simply stated, we believe this is a great industry and a great business to be in and will continue to provide many opportunities for us in both share gain and in underlying growth. And now I'd like to introduce Tom Hunsinger, our Vice President of Marketing for McDermott Alpha to describe more about our Assembly Solutions division. Tom? Thank you, Joe. My name is Tom Hunsinger. I'm the Vice President of Marketing for McDermott Alpha Electronic Solutions. I've been with the business for over 15 years and I was an expat in Asia for about 4 years working out of our Singapore office. The Assembly Solutions division has a long history of providing materials and solutions and really the foundation of our business is joining components onto the PCB. Our materials are the mechanical and electrical connection and there are many, many ways to assemble a board and our business provides materials that can accomplish all of the methods for this assembly. Some of the technologies and processes are simple, where you would take an alloy, a molten alloy and have the board run right over the alloy. That's called wave soldering. And just as Joe showed the bare PCB, when you're finished with the processes that are material supply, you do have a fully populated board. As I said, wave soldering is really when the material touches the bottom. A higher technology process is called surface mount technology. And in that process, you take solder paste, you print it through a stencil, and then the components are actually touched onto the paste and that's how the board is assembled. The basis of that technology has really provided the explosion growth that you've seen with mobile phones, laptops and even sorry about that. The explosive growth of mobile phones, laptops and even electronics content in automobiles. But really the investment in technology doesn't end there. We continue to invest and look at new materials. In fact, one of the newer processes and products are the nano silver materials that are used for power electronics and we've also invested in ink for printed circuitry. And as those materials start to reach an inflection point, the good thing is that, that part of the industry is growing and as you go higher up the technology curve, we're actually able to get better margins on those products. So we see growth not only in units, but also in our ability to convert from lower technology to higher technology. And in addition to the products that we make and sell, another area that we can differentiate from our competitors is our metals reclaim business. So in that, what we do is we're able to work with our customers, bring some of their scrap material in house. We comprise a very traceable way of bringing that material in house. It also helps to reduce the amount of virgin material that's used. And then we can take that material and reprocess it into high purity material that goes back into our products. So we're really able to work through the entire supply chain when you're talking about electronics assembly. In Assembly Solutions, the way we've differentiated is by working with our customers to try and provide the lowest total cost of ownership of assembly. Our sales, applications team, marketing team and R and D folks are continually working on the portfolio of materials that are used to really drive this. And we're in a very good position because we have excellent relationships not just with the OEMs, but also with the contract manufacturers. So we regularly engage with these folks on technology roadmap exchanges. We're able to take that information back. The marketing team, the sales team worked then with the R and D group to make sure that what's in our pipeline hits their term windows, but we're also looking 2, 3 years out in terms of what their designs might be so that we've got the right products at the right time. So in that way, we really do have the broadest offering of materials in the industry and we participate in the entire electronics industry. Kind of in short, if anything that you have that can be powered on or off, that's really a potential customer for us. These products and materials are supported by a really excellent global manufacturing footprint and quality team. So not only do we make high quality materials, but we've got invested in the infrastructure to make copy equivalent materials. So as the industry continues to evolve and if there's a shift in production, we really do have the footprint to be able to manufacture wherever our customers are. You'll see on the screen that the majority of our business is in Asia today. That's really driven by a lot of the mobile phone and computing. But as several people have talked about already, the advent of a lot of the data management systems and automotive applications, many of those things are manufactured closer to where the products are consumed. And with our global footprint, we're well positioned to be able to make products where our customers want them. And if there is a shift in production from one place to another, we're basically already there to be able to support that growth. So you also see on the screen that most of our about 50% of our revenue comes from surface down technology, which I described previously. But we do have really a lead position in the other materials that are growing, like I said, the Nano Silvers, the sintered products and even some inks for printed electronics and adhesives. So as the industry evolves, we've invested in being able to take advantage of that adjacent growth and we may even invest in some new materials, conductive adhesives, non conductive adhesives and things of that nature. So thanks for giving me some time to talk to you guys about our business. And what I'd like to do next is introduce Leo Lanahan, who is the Vice President of our Semiconductor Solutions Group. Thank you, Tom. Good morning. I'm Leo Linehan, Vice President and General Manager of our Semiconductor Solutions Business. I started my career in the semiconductor industry in 1986 working for IBM Microelectronics, who now no longer sadly makes microelectronics, which is frankly a little bit sad for me. I worked for IBM for 11 years doing materials and process development for their semiconductor fabs. And then for the following 22 years, I've worked as a material supplier in starting in R and D and then moving into sales, marketing and now general management. Semiconductor Solutions supplies proprietary chemicals that enable design, production and packaging of semiconductor chips. Our damascene chemistries are used to inlay sorry, I guess both of us did it. Our damascene chemistries are used to inlay patterns of metals such as copper into semiconductor chips to connect billions of transistors that are in today's modern semiconductor chips. This metal patterning process is often repeated over a dozen times during the process of making semiconductor chips. And as a consequence, multiple layers are built up. So we get multiple passes on each wafer with our damascene chemistries. Once the semiconductor chips are produced, our functional materials, redistribution chemistries, interconnect chemistries as well as photomasks are used to produce semiconductor packages. Let me share a little bit of background on semiconductor packaging. Semiconductor packaging serves multiple functions with the most critical being it provides a path for nanometer scale transistors to communicate with the external environment. And that's generally a circuit board, which Joe described to you. Other important functions of semiconductor packaging include management of heat generated by these billions of transistors. You can think of transistors themselves are actually like little heaters. So you knew that you've got billions of them on a chip, you generate a lot of heat in a chip and that becomes a major challenge that semiconductor packaging has to manage. We also semiconductor packaging also provides a means of protecting these very delicate and very expensive semiconductor chips. So it's a form of mechanical protection. So that when the semiconductor chips are then subsequently assembled onto circuit boards using the materials that Tom just described that come from our assembly solutions business onto circuit boards that Joe described using our circuitry solutions chemistries. That process, you've got a lot of mechanical handling of semiconductors and they need to be protected. So packaging provides protection for the subsequent assembly and packaging assembly operations. So what sets us apart? In the 1990s, Enthone established itself as a technology and quality leader in the Damascene market when IBM introduced damascene processing. We've maintained this position to this day. Being a a proven technology and quality leader in the semiconductor industry is enabling if you are 1. And frankly, it's a tremendous barrier to entry if you are not a technology or quality leader in the a technology or quality leader in the semiconductor industry. So that is something that we definitely leverage to our advantage. Our path to market uses our position as a market leader using collaborative R and D to R and D customer engagements to develop integrated process solutions for both semiconductor manufacturing as well as packaging. These close engagements with market leading customers are essential. And it's what drives our innovation team who are using technologies that McDermott as well as OM Group. We are also using significant investments that Element Solutions is making to support this development effort. However, Moore's Law, the growth opportunities that we're seeing and what the growth drivers for semiconductor have historically been Moore's Law or transistor scaling. And this is still a growth driver for the semiconductor industry. High performance computing, big data and big data is driving that is driving demand that's causing customers to build $20,000,000,000 fabs and spend 1,000,000,000 of dollars on each generation of technology that have to be developed and put into these new fabs. Damascene will continue to be a critical technology for years to come and will continue to drive growth the Semiconductor Solutions business. However, technical and economic limitations in Moore's Law have resulted in growing demand for materials innovation and advanced packaging. These $20,000,000,000 factories are resulting in extremely expensive semiconductor chips. So growing so customers are now increasingly trying to use advanced packaging to mix different semiconductor chip generations to cost effectively achieve performance and functional targets that in the past had been exclusively achieved using Moore's Law. The stacking of different types and generations of semiconductor chips using 3 d packaging has become known as more than more. More Than More is now a huge focus in the semiconductor industry and is in fact a major growth driver for semiconductor solutions. The semiconductor industry is we are now engaged in multiple customer R and D to R and D engagements developing new technologies with market leading customers to drive new product innovation and new products to take advantage of this new trend in the industry more than more. Thank you for your attention. And I'll now hand it back to Joe, I think. Thank you, Leo. So innovation has been a hallmark of the nearly $2,000,000,000,000 electronics equipment market since its inception. And McDermott Alpha and its legacy organizations have a long tradition of facilitating, enabling and in many cases leading that innovation. As Ben very succinctly put it, our innovation enables our customers' innovation. And although one of the main drivers of expansion over the last 10 years, the mobile and handheld markets, is showing some signs of maturity, they will still be driven forward by innovations such as foldable screens, 5 gs communications and the need for increasing functionality in the devices we use every day. And waiting in the wings that you see on the screen here is an entire array of other end market drivers, any of which could be transformative in the functional performance excuse me, for the electronics marketplace rather as we know it today. All of these emerging technology trends have one thing in common. They will continue to advance the degree of complexity in the construction of our devices and complexity for us for McDermott Alpha is actually a very good thing. Every new design that requires finer and finer features requires new materials or new construction techniques. Virtually every discontinuity or change in the electronics manufacturing supply chain is an opportunity for us to innovate. It's an opportunity for us to use our extensive innovation resources and applications expertise to solve those technology challenges or to innovate an entirely new solution for our customers. And this innovation can take many forms. It can be continuous incremental innovation as in our copper via fill solutions. We are completely filling smaller and deeper vias in the circuit board, while at the same time depositing less and less copper on the surface is a continually moving target. Or it can take the form of something transformative for our industry such as low temperature alloys and adhesives to enable the next generation of assembly solutions that would completely transform the way power electronics are manufactured today. Innovation has driven the growth of the electronics industry for decades and our ability to continue to meet those innovation challenges with new solutions for the industry will continue to drive our growth in the future. Now although we've organized ourselves into 3 distinct divisions, we continue to see in the state of the art of interconnect technology something that we call the great convergence. From a historical perspective, constructing an electronic device has been done by fabricators with fairly discrete and well defined manufacturing expertise. If you were in the past, if you were either a semiconductor fabricator like Intel or TSMC, a semiconductor packager like Amcor or ASC, a circuit board fabricator like TTM Technologies or Unomicron or a circuit board assembler like J Bill or Foxconn. But as the demands for increased functionality in smartphones and in high performance computing applications that Leo mentioned like artificial intelligence, augmented and virtual reality. As those demands continue to drive increasing circuit density as well as reduced package footprint, the industry will continue to search for innovative ways to get us there. Again, historically, this increasing functionality and performance was achieved simply by following the path of Moore's Law that Leo mentioned. And as Leo just described and in even simpler layman's terms, it states that processor speed or essentially computer processing power doubles every 2 years. And for years, this trend held true. But in recent times, it's become apparent that Moore's Law is running out of steam running out of steam rather and for 2 very clear reasons. 1 is for the because of the technology challenges that the industry faces as we try to manufacture smaller and smaller transistors. And the second is because of the tremendous cost associated with the construction of a latest generation fab capable of churning out silicon with 7 nanometer and soon 5 nanometer and 3 nanometer transistors. So to fill this gap, the industry has turned to new and innovative ways to package semiconductor chips manufactured with existing semiconductor technology, but to package them in a way that increases their and functional performance. And this isn't being done solely by the semiconductor packagers. It's being done by a variety of players in the electronics manufacturing supply chain. What we see is that printed circuit board And semiconductor fabricators are no longer only fabricating chips, they're also assembling them together in new package designs with multiple chips stacked in 3 dimensions. And there are no design rules here. Each participant sees an opportunity to develop their own unique and novel package design to meet the specific needs of their individual customers. It's this evolution in semiconductor package design that is essentially blurring the traditional lines of manufacturing that existed between semiconductor fabricators, semiconductor packagers, printed circuit board fabricators and printed circuit board assemblers. And it's here where a truly great opportunity exists for McDermott Alpha. We believe that it's an integrated solution of co designed and co developed technologies in all facets of device manufacturing that will eventually win the day. And as the only supplier with leading market share in all of these areas, we believe we're uniquely positioned to provide the type of integrated solutions necessary for our customers to design and develop the next generation of semiconductor packages and interconnect devices. And to put this all into perspective, I like to use this graphical representation of an electronics assembly to illustrate not only the breadth of our product offering of our portfolio, but also how closely interconnected and interdependent many of these solutions are. So here we have an illustration of a cross section of a relatively advanced electronics assembly that you might find in the latest generation smartphone device. It's a semiconductor chip at the top packaged in an advanced fan out wafer level package that's mounted on a high density multilayer interconnect substrate or printed circuit board that you see on the screen. These are all fabricated and assembled with process solutions and materials available for McDermott Alpha. And while it illustrates the complexity in an electronics assembly today, it also illustrates how uniquely positioned we are to meet not only the requirements of increasing complexity, but of increasing reliability as well. So I like to use the evolution of the smartphone and the future needs of the automotive industry as an example. What clearly drove the evolution of the smartphone was performance, along with certainly low power consumption, performance that you see in a smartphone today is the type of performance that we believe the automotive industry is eventually going to need to make completely autonomous driving a reality for all of us. What was secondary in the development of this smartphone was reliability considerations. Of course, there were minimum and improving reliability standards throughout the evolution of the smartphone, but it simply wasn't the primary consideration. So the question still remains, what process chemistries and materials will be necessary to meet a much higher reliability standard that exists in the automotive industry when you compare it to what exists in the smartphone industry today? And to completely illustrate this point, take out your smartphone, leave it outside 20 fourseven or better still strap it to the side of an engine drivetrain in Minnesota, where temperatures routinely reach 150 degrees C, not in Minnesota, but on the side of the engine drivetrain, And temperatures routinely drop to where it gets pretty darn cold in Minnesota, right? And put it under constant shock and vibration and instead of expecting it to last 2 to 3 years, make sure it lasts 10 years or longer. That's the challenge we believe that our industry is facing today. But in fact, we don't necessarily view this as a challenge, but rather as an opportunity for us. Because when you think about the electronics assembly in its simplest form, in reality all it is, is a collection of circuit pathways formed with Circuitry Solutions Divisions and a collection of circuit pathways that are then joined together with assembly materials from our semiconductor solutions and assembly materials divisions assembly solutions divisions rather. And this formation and joining together of circuit pathways in an electronic assembly is really the ultimate determinant of reliability in that electronics device. And once again, this uniquely positions McDermott Alpha as the sole supplier in the industry capable of meeting the increasing complexity and reliability challenges that our industry faces. And with that, I'd like to thank you for your attention today and it's my pleasure to ask Scott Benson to return to the stage to come up once again and introduce our Industrial and Specialty businesses. Okay. So just here for me briefly, this time you heard about our Electronics business segment and I'm going to introduce you to our other business segment, which we call Industrial and Specialty. This segment is made up of 3 business units. Our Industrial Solutions business, which is a combination of the legacy McDermott and legacy Enthone businesses. This business provides decorative and anti corrosion chemistries across multiple industries, whether it be construction, sanitary household goods, automotive. Truly now a global leader in the entire entire And our what we're now calling our Energy Solutions business, which is a historic business that came out of the legacy McDermott portfolio primarily today focused on deepwater, offshore, oil and gas drilling and production. So fluids for the drilling and production for deepwater offshore oil and gas. But an area that we think we talked earlier about market adjacencies that this is one that enables us potential future investment to expand our portfolio, which is why we call it now Energy Solutions. All of these segments have good long term growth characteristics, GDP plus Every business that you're going to hear from today is a leader in their markets with very diverse customer bases around the world. So without further ado, I would like to introduce Michael Sigmond, who is Vice President of our Industrial Solutions Business. Thank you, Scott. My slide is set up for me. So thank you for giving me the opportunity to talk about a business that I think is extremely exciting and I hope you'll find it so as well. My name is Michael Sigman. I've been 35 years with this business, Element Solutions and Predecessor Companies. I've lived and worked all over the world. As you're going to see, we're a very global business. And we're going to take a little bit of a different direction. You spent all morning listening to us talk to you about electronics. What I want to really point out now in the introduction is that the business I'm about to describe has an extremely different end use market and extremely different application, but the business model, as Scott talked about in his introduction, is exactly the same. We innovate in the same way. We formulate chemicals. The manufacturing is the same. In fact, we share factories with the electronics division. And we provide wet chemistries and we service them with a global staff. So with no further ado, let me get into that. You're going to see the similarity in the business model and the structure. So we produce we formulate and produce chemical additives that are used to treat surfaces, both metallic and non metallic. We serve almost every kind of manufacturing industry in the world. The most important industry we serve and the largest end use market is the automotive industry and that we are engaged in the automotive industry everywhere in the world. We our finishes, as you can see here, provide anti corrosion coatings to prevent rust and degradation, decorative, the most famous of which I think is what we would all call chrome on a car or a faucet. Wear resistant coatings, clearly used in all kinds of equipment, including automotive. For films, very soft plastic film that's used throughout industry, including in automotive, we treat with chemicals that produce a hard coating to resist wear and also resist chemical corrosion and degradation for the life cycle and length of a vehicle in particular. And then finally, with the advent of the new technology cars and the demand for lighter weight, steel is being replaced by lighter metals, particularly aluminum and that offers us a tremendous opportunity for new treatments, new surface treatments for both performance and longevity and this again is very much part of the automotive industry. All right, what sets us apart? Well, first of all, we have a very deep and broad engagement with the automotive OEMs and Tier 1s throughout the global supply chain. This has allowed us to participate in the development of specifications and development of applications and a know how, a deep know how for the needs, meeting the needs of the automotive industry. The automotive industry is attractive because it's a very high spec, high value market for us and the technology that we create in the automotive industry is then used throughout other manufacturing industries. We also have a global base of leading applicators. Those are our direct customers. These are people that are part of the supply chain, industrial supply chain around the world. Like in the electronics business, our applicators use our chemical processes and meet the needs space. We are particularly involved today in developing technologies for the new technology vehicles, so meeting needs that we understand for the future as we work with the car companies. And there is an ever an ongoing and ever increasing demand for environmental and sustainable solutions to problems. The elimination of materials of high concern, the elimination of metals that cause problems for people and the environment. All of this represents great opportunities for us. So how are we going to continue achieving above market growth? First of all, I would just like to point out that for the last 10 years, the automotive industry itself in unit production has surpassed GDP growth. In addition to that, for us, as far as continued achievement of above market growth, the value per unit of vehicles continues to increase. Why? Consumers around the world are becoming richer and as they gain income, they demand higher quality cars. Low value cars still represent a little bit less than 50% of the 90 +1000000 vehicles manufactured in the world every year. As those unit vehicles increase in value, we increase the available content for us. It's an expansion of our market opportunity. In addition to that, the changes going on in the auto industry represent an expansion of opportunity because the new technology vehicles will include more opportunity for us, more opportunity to create value. And then in addition, the environmental regulation and the drives for replacing historical substances with new substances of less environmental impact represent additional opportunities for innovation. So together with these things, we are able to both gain share and grow along with the industry. And the share gain in particular is what has driven our above market growth over the last years. Finally, as an example of 2 things we've done very successfully, Ben already mentioned to you, EVOLVE. This is our replacement for hexavalent chrome in the automotive supply chain and all related supply chains for that matter, driven particularly by regulations in the EU. I'm sure once it's proven capable in the EU, this will become standard practice around the world and it's a huge win for us, both in market share gain as well as expanded margins because of our ability to charge more for a solution to a very difficult problem. And then the other thing here, Zinkladd, we've also talked to you about that. The Q stands for quality. So the way I like to think about this, the car companies in particular don't need us to help them with their supply chains in their backyard, but with the globalization of the automotive industry, they desperately need help to discipline the supply chains that they enter into, disparate supply chains all over the world where the same level of quality specification standard must be met. Because we're global, because we're technical experts, we're on the ground in all of these locations, we support them everywhere in the world monitoring and auditing and helping support the quality that's produced by their supply chains. So finally, the industrial business really is the business that's had the closest relationship for Element Solutions over many years with the automotive industry. I've talked a lot about that here. We've built a very strong team and because of the new technology opportunities that Joe also talked to you about, You're going to hear in a minute a new initiative that we've launched for representing all of Element's technologies to the automotive supply chain. I think it's very exciting and really the backbone of that comes from the work that we did for years in the industrial finishes working with the car companies. And now I would like to introduce Melanie Galloway from Graphic Solutions. Good morning. It's a pleasure to be here with you today. I'm Melanie Galloway, and Vice President of McDermott Graphics Solutions. My background is in Specialty Chemicals and Food Ingredients and Commercial, Technical and Leadership roles. Let's talk about graphics. So our graphics business manufactures printing plates for high quality print on a variety of materials. I have a couple of examples here of our printing plates, kind of small, right? Our typical printing plate though is 40x60 inches 50x80 inches so much larger than these. We segment our business by the markets we serve. Flexible packaging, these are potato chip bags or pouches, corrugated, which are multicolor boxes, and then folding carton and tag and label, all of which we see as consumers on our retail shelves. Graphics is a global leader in both sheet and liquid photopolymer, and we're focusing on those higher value end use applications. Many of our end use customers are consumer products groups and food companies, and they really rely on the packaging to offer delivers distinct and vivid images that get the attention of the customers on the retail shelves. So from a market standpoint, we see the industry is about $1,000,000,000 in size and with flexible packaging being the highest market value, graphics are leader in this space. The corrugated packaging market is the largest volume sector, providing strategic growth opportunities for us in higher value end applications. One of the things that really excites us about this packaging and graphics space is really the long term attractiveness of the business and also the key focus on innovation, which is a true strength for McDermott. So from a position standpoint, graphics is well positioned in this market. As you can see, we're about 60% of our business is here in the Americas region. 75% of our business is in the packaging sector from a product standpoint, and that is the sheet and liquid photopolymer I've been talking about. For 25% is in our screen and use business. So how do we set ourselves apart? We differentiate ourselves from our competition 3 different ways: people, technology and relationships. Our people and support we provide to the customers is definitely key. From our technical sales teams, we have additional support also for application specialists as well as in house engineering. This team is really world class and they're in the field every day building trust and respect with our customers. From a technology standpoint, Graphics was the first to introduce Flat Top Dot technology in the plate. You'll hear me talk about it as ITP. What ITP did is basically simplified the process for our customers and allowed them to produce the top quality graphics that we all have gone to love. This is a perfect example of how we're anticipating needs of our customers and then innovation is actually fulfilling those needs. Our end use customers, as I mentioned, are consumer product groups and food companies, and we service them through a variety of different channels. I think the brand owners rely on the packaging, as I mentioned, to deliver that intended value proposition to consumers, products. The main growth drivers for our business are demographics and industrialization. As industrialization continues in these emerging markets and the middle class grows, we're looking for ways to make our lives easier. And one of the ways to do that from packaging standpoint is convenience packaging. The second is environmental awareness, conversion from rotokrevir to flexographic printing. Flexographic printing actually has a benefit from an environmental standpoint, but also efficiency, cost and quality. Another trend we're seeing is with biodegradable packaging. And I'll talk a little bit more about this with one of the new product innovations that we but increased recycle content in corrugated board as an example. So a couple of our recent innovations, I mentioned graphics innovation is core to our graphics business and critical to our growth and strength going forward. We have 2 key product launches I'd like to share with you. 1 is our Luxe ITP EPIC and the other is the Luxe ITP Mellow. And again, those are in our in the plate platform. The ITP EPYC was developed for the flexible packaging market, and which is growing based on that demand for convenience packaging. And brand owners are looking for always to capture our attention on the retail in the retail shelves. They're demanding higher and higher quality for more color, more vivid graphics and what they also demand consistency from 1 printer to the next and also globally, so to give them a lot of flexibility. IPP Epic was formulated to provide quality and consistency they can count on every time. And it also allowed the producers to simplify the printers to simplify their process. It's really a win win for brand owners, printers as well as us as consumers. 2nd is our Luxe ITP Mellow. In the corrugated packaging market, as I mentioned, the demand for recycled content is increasing. With that additional recycled content, the quality of the board could be compromised, the strength of the board. Also, the characteristics of the board change, and that could change how we print on it. ITT Mellow is a softer plate that we've developed that enables really that top quality print, but also eliminates board crush. And that's really important for the manufacturers. Again, a win for the brand owners, a win for the printers, and a win for us as consumers. The market response to both of these new products has been incredible. And they're great examples of how we continue with our innovation to recognize a market need and figure out how to solve our customers' problems. Thank you for your attention. And next, I would like to introduce Steve Rocca, who will talk about our Energy Solutions business. Thank you, Melanie. As she said, my name is Steve Rocca. I am Vice President for the Energy Solutions segment. I started in the oil and gas business in 1984 working in the field and in the late 80s I moved into a commercial role, primarily focused in North America, Gulf of Mexico operations. I moved into some international experience before joining the company in 2,008 in a commercial role here and then moved into the management position in 2016. So what I'd like to start off with here is talking about, as Scott mentioned, primarily focusing on the offshore deepwater drilling and production applications. Our products are primarily water based hydraulic fluids that are used to here, there we go, that are used to lubricate, prevent corrosion and provide functional operations of valves in subsea equipment all over the world. They're designed to be environmentally friendly and biodegradable and non toxic to the environment because these are used in the oceans. Even though that they are primarily or they are environmentally friendly, they also have to be robust enough to match the life of the subsea equipment that can be in operation for 20 or more years. We as our products are consumable in nature, they represent a very small percentage of the customer overall operational costs, but our products are fundamental to ensure that they can produce oil and gas. We are in nearly every oil and gas field in the world offshore. We work with all the international oil companies, national oil companies and the regional players. As far as for drilling companies, we work with all of the drilling companies throughout the world. As Scott mentioned also, we are aligned with our manufacturing and distribution channels strategically with all of these operational fields. And it's key for us to be able to provide a consistent formula everywhere in the world so that our customers know that if they buy products from us in the U. S. And they use them somewhere else, it matches exactly to what their expectations are. We meet or exceed all marine environmental regulatory requirements, and this ensures our customers' operation. We understand the applications and we formulate our products to meet the functional requirements that the equipment manufacturers demand. Our products are rigorously tested to all of their requirements and it can take many, many years to bring a new product to the market. And this is due to all of the testing that has to be done. As with the other groups, we currently hold the strongest market share in our marketplace and we continue to expand that market share as new wells and new drilling operations take place. And as with others, enabling technology is very key to what we have going on. We recently developed a product recently in 2,009 we introduced it to the market. But we developed this product for a very environmentally challenging situation. It was a very high temperature application and we developed the product that actually drove the equipment design so that the operator could start developing the field. So without our product, that field would have never been brought into operation. And the last thing I want to mention on here is, as you can see in the distribution, we're proportionate to where the oil and gas production takes place. However, we see Asia as an emerging market and we have invested in the region, so we're poised to take the growth when it comes. And next is going to be Steve Brown to talk about the automotive initiative that we have ongoing that Mike mentioned. Thank you. Thank you, Steve, and good morning to everybody. My name is Steve Brown. I'm responsible for the automotive program in Element Solutions, MacDiarmid Alpha Automotive. You've already heard how changes in the automotive industry will drive growth in our business from Joe, from Michael, from various people. The McDermott Alpha Automotive Initiatives are designed so that we can be a proactive partner to help deliver solutions that the industry needs as it evolves and cause and in some cases even help the industry to understand what it needs and what is possible from our material technologies. As an introduction to myself, I joined the electronics industry some quarter of a century ago. Now in the last 10 years, I've been automotive industry, predominantly in electronics. So we're going to start with talking about an automotive revolution. The automotive industry is in its biggest period of change arguably since Karl Benz invented the automobile over 130 years ago. Changes have been driven through several for several reasons from major technology shifts, environmental considerations and also design requirements which have been pushed by the need for more and more content in today's automobile. So I want to talk you through some of those trends now as an introduction to how it impacts our business and gives us more and more opportunities as we move forward. One of the first trends is the need for lighter vehicles and new construction materials for vehicles. That was driven initially by the need for a greater fuel efficiency for internal combustion engine cars, but it's become even more important as we move towards electric vehicles as it impacts the range and performance of that vehicle. Another macro trend is the increased consumer demand for higher quality interiors with more and more functionality and indeed connectivity. Scott mentioned before that people's kids complaining if the Wi Fi doesn't work in a car anymore, how things have changed. The next part is the competitive drive from a lot of Asian OEMs offering very long warranty periods in the market space, particularly in Europe and the Americas to gain and drive market share. That's meant that part suppliers have had to make more and more robust systems, which have to last a longer period. No longer do we get the 12 month warranty, we see 7 10 year warranties on cars has a big impact on the industry. And finally, globalization, the need to produce products consistently in multiple locations, the same way every time in production as production moves around the world and the Tier 1 supply chain moves within. The next trend we see is auto electrification. Electrification comes in a number of different areas and Joe and numerous people have touched on this already to some degree. I want to talk about some key points in there. A lot of it's to do about the integration of systems where a mechanical system becomes a mechatronic system. So rather than a big chunk of metal, it actually actuates some power electronics parts to help with functions such as braking and steering. It's a big change in the industry. To enable that, we include a vast array of sensors into the cars and our technology makes the seamless integration of those sensors possible from both our industrial and our electronics businesses. The second part of electrification is very clear. It's the electric powertrain, the move towards electric vehicles. From the great shifts we're witnessing in the market today and we're playing a very big role in this technology. And on my final slide, I'm going to talk about a case study where we're already being very successful in that market space. The third part of electrification is that automation of driving functions. Only possible with the most advanced communication systems, we've already touched on 5 gs, for example. We're seeing communications companies developing their own automotive divisions. That was pretty much unheard of a decade ago. The 3rd driver of change in the automotive industry is from environmental pressures. We're seeing a lot of differentiation opportunities of car companies start to operate more like consumer electronics companies in demanding very transparent environmental management and sustainability programs from their suppliers and their supply chain. We're very strongly positioned in this aspect throughout our business units, giving us great opportunity for share gain. And finally, on design trends. The transformation of car interiors is at the forefront of a complete redesign of how car interiors are constructed. As a little teaser for this, we're moving away from what used to be a collection of decorative panels within a car, which are hiding an array of electronics interconnected by a series of cables behind them. The car company is starting to say, why can't we build this functionality directly onto panels into cars? So this is where our decorative parts of our businesses meets our electronics functionality part of our business. And I'll talk about that a little bit on the next slide. On the right hand side of this slide really shows the growth of electronics in cars. It's not surprising that electronics is growing at a greater rate than the rate of car vehicle production because of content. I think we all know that, we see it everywhere. And as we go towards more automation and more electrification, we see that continuing over the next 10 years. So for all these reasons, that's why we've created MacDermid Alfa Automotive to capture and take advantage of these opportunities. McDermott Altra Automotive, I'm going to talk a little bit about the focus and strategy and how we leverage our expertise to support new technology vehicles, which we see growing at a great rate. I'll talk in my next slide more about our organization, but we have a dedicated team of cross functional and technology experts which support OEMs, Tier 1s and specifiers of our materials. Really we're focused on 3 areas. And as we think about these fundamental changes of the technologies, these inflection points, we see a series of challenges but indeed opportunities in the evolving supply chain. We believe we can take significant market share through a potent combination of having both established relationships at every level of the supply chain along with class leading and unique combinations of materials, which deliver solutions to the core issues facing the industry today. Are focusing our efforts on these three areas. Let's start with electric vehicles. There are many market analysts producing data showing the expected growth of EVs, electric vehicles, and the predictions continue to grow more boldly from 1 year to the next. It's no surprise that the growth is coming through. It's grown through a combination of things, technology development, making EVs more usable and accessible, along with governments around the world facing up to the issues of environmental pollution. As a market focused organization, we've developed solutions which are designed to meet the demands of the parts makers, the car makers and indeed the end user. And we'll talk a little bit about that on our final slide. Our solutions directly associated with EV are focused on enabling more efficient power output from the electric powertrain with the highest reliability interconnections, how the whole thing is joined together and enabling lightweight chassis construction. And a good example of this is in the treatment of, I have to concentrate now, aluminum to enable its use for the critical structures such as battery trays from our industrial unit. That enabling technology allows us to take significant weight out of the vehicle, which has a big impact on the vehicle's range. The second area of focus is on vehicle automation, the automation of driving. There's a rapid move towards automated driving. Elements already involved in a vast array of electronics hardware used in today's vehicles. There's already a lot of electronic systems in the car, somewhere between 60,100 printed circuit boards in excess of 50,000 electrical interconnections. And as we move towards autonomous driving, the focus on them being reliable becomes critical. The automation of driving functions has been happening for many years through the use of driver assistance systems, now referred to as ADAS, Advanced Driver Assistance Systems. The driver assistance is as simple as a humble windshield wiper, whereas ADAS extends the integration of many sensors to enable a car to brake, accelerate and steer automatically. But when we look to reliability and how these systems need to work and function and how critical Element Solutions products are in building of that hardware, It's true to say that reliability has become even tougher because not only are these products critical in their use, they needed to be miniaturized. A lot of our expertise in the miniaturization of things like mobile phones gives us a lot of process and product insight into how we make smaller electronics. But our next challenge is how do we make them super reliable as well. We've got a great team of people, scientists and engineers who understand how to make these systems reliable in harsh environments that we see in the automotive industry. The 3rd area is in interiors and displays. I think we all see the changes to how car interiors have been look and feel. I think few of us understand about the difference in how they're starting to be constructed. The standard method of assembly as I said before is to have an electronic system hidden behind a decorative panel and a screen and interconnected by a series of cables. The amount of electronic content in a car today means that can be up to 100 kilograms of cables at 7% of the weight of the vehicle in a time when we're trying to reduce the weight of vehicles. So for that reason, carmakers are engaged in that march towards the integration of some of these electronic systems directly onto the rear side of decorative and display panels. This delivers both parts and weight reduction, car assembly simplification, as well as reducing the number of suppliers. Element Solutions are uniquely positioned with a leading position in automotive display films and with several delivery methods to create circuits directly onto these films. With these opportunities, we can see a doubling of the dollar content per vehicle as these new technology vehicles roll out. So now to expand on our group, McDermott Alfa Automotive. The market focus group created primarily to drive system level automotive innovations from the breadth of materials, technologies from each of our electronics and industrial businesses. At the core of the organization is the OEM team connect our businesses with both designers and technology groups in all of the world's major automotive carmakers. It's a unique resource within the industry. They're also supported by a team focused on the major Tier 1s as well as a group focused on the 3 growth nodes, which we've highlighted. We've dermied Altra Automotive follow a 3 stage process of identify, create and deliver. We identify the inflection points in areas of rapid growth, which our business can win share and benefit from the high compound annual growth rates available in these spaces. Then create, the chosen areas of focus are areas where our unique ability to bring complex multi dimensional solutions to the market matter most. And we deliver them by focusing on technology shifts. We maximize the value we can extract through being unique and integral to enabling the growth technologies to meet the market demands. And finally, I'll talk in a case study of an area where we're already successful in one of those major growth nodes, the electric vehicles area. So we've developed and communicated a deep understanding of the impact of material selection and processing on the performance of the electric vehicle powertrain with our argomax product line to the automotive industry. In producing highly efficient systems to convert DC battery power to usable power electric motors. We need to reduce weight, increase power. We reached the limits of conventional interconnect materials in terms of their thermal and electrical conductivity. What we're looking for is increasing power density in these devices. A limiting factor for electric vehicle performance comes directly from the physical performance of these interconnect materials. And as we try to reduce weight and increase the power, we mean that the power and range can only be increased by having larger, more complex and heavier systems, unless a revolutionary material is used to provide a step change in physical performance with thermal electrical performance greater than 5 times out of a typical soldered material, which had been used previously. Element Solutions' Alpha argomax Sinter technology has proven to be that material, enabling more power and more range, which is critical to the market from an EV powertrain whilst enabling that miniaturization. So we think about what does that bring to the industry over time, what comes next. We see the future of this technology enabling the integration of these inverter modules directly into electric motors and even the integration of these directly into the wheels of high performance vehicles. This truly is a revolutionary material, which is making massive inroads in the automotive industry. We see our market focused team working at OEMs and Tier 1s to deliver the answers to tomorrow's technical challenges and a very bright future for Element Solutions in Automotive Technologies. And that completes my presentation. And now we're going to I'm not going to pass to anyone. We're going to stop now for a 15 minute coffee break. Thank you. Okay. Company for 18 years. Over that time, I've had management roles in accounting, finance, commercial and operations. And I think that experience managing all those different functional areas puts me in a unique situation to manage our supply chain strategy moving forward and how it impacts both our organization and the customer. Today, I'm going to highlight the competitive advantage of our manufacturing footprint, the makeup of our cost of goods sold, key strategies we have today in the supply chain and highlight some key initiatives related to corporate social responsibility. Our manufacturing footprint split about a third, a third, a third between the three geographic regions. Our manufacturing footprint is a competitive differentiator for our business. Our locations are strategically located close to our customer base. They require low capital expenditures and allow flexibility to cater to customer demand. We think global and act local. What that means is in our manufacturing facilities, we produce products that are tied to global specifications, but we're able to do that really close to the customer base. So the customer can ensure that the products they get from our different manufacturing facilities are the same from one location to the other. That consistency is really important to our business. Historically, our manufacturing facilities were aligned more specifically to product lines or verticals. In the new world of development solutions, they fall under the ESI umbrella. What that means is, if it makes sense for any of our facilities from either a financial perspective or customer service perspective, we'll leverage that footprint even more than we have in the past to produce products at any of our facilities. So our footprint going forward will be more open to leverage than it was in the past. In 2018, our cost of goods sold was about $1,100,000,000 80% of that is made up of materials, 50% of that was nonmetals and 30% of that was metals. This whole spend is all flexible to demand. It will go up and down as our business grows or declines. It also represents the largest spend category in our P and L. We created a strategic sourcing organization to focus on this big opportunity for us, and I'll discuss that in the next slide when I talk about our strategies. The remaining 20% is made up of our conversion and logistics component of the cost of goods sale. This is where we leverage our footprint for additional volume with minimal CapEx and operating costs. I'll share a case study to follow where we'll give you a good example of how we took the opportunity to leverage a manufacturing facility with low capital expense and low operating expense. Everything we do in the supply chain supports our overall strategic rallying call of creating a supply chain that's a sustainable competitive advantage to our business. We all know that achieving this strategy provides our commercial teams a different additional value in front of the customer. What that would do is help support our growth and also create a moat to protect the business we currently enjoy. Tremendous excitement in the supply chain organization to support the business in this capacity. The four cornerstones of our strategy are sourcing excellence, continuous improvement, logistics optimization and accountability. Sourcing excellence, as I mentioned earlier, 80% of our cost of goods sold is tied to sourcing. The sourcing excellence team works on direct and indirect costs. So they deal with a bigger piece than just the raw material spend. Their focus is on our raw material spend globally, creating relationships with suppliers for best in class cost and service levels. They will also think global and act global. Their initiative is to reduce and manage our suppliers and costs on a global basis, but ensure demand and supply is available at the local level. Our sourcing team is moving and migrating to a category management model. What that will do is based on the chemical makeup of the raw materials, we could further shrink the portions of our raw materials into manageable components. That gives more visibility into the into our raw material spend. It's a it will create a cost driver focus on those raw materials, provide key market intelligence to look forward. We want to understand what's coming in our market so we can react appropriately in time and just focus on the bigger piece in the smaller pieces. So metals, for example, is a key category component of that. So currently, we self hedge our metals with pass throughs to our customers. We still think that this large category has an opportunity for us. In many ways we can do this, we can reduce our spend with strategic hedging programs, leverage our best practice surcharges across the organization and even continue to leverage recycling programs to recycle more and use more recycled raw materials in our formulas. The next cornerstone of our strategy is continuous improvement. We're creating a culture of optimization and continuous improvement in the supply chain. I want to discuss a few initiatives we have going on to support this. Number 1 is the Idea Chest. In 2019, we rolled out a program called the Idea Chest. I truly believe the best ideas for improvement in cost and process come from those doing the jobs. So what the Idea Chest did, it gave our 1800 employees in the supply chain a voice. They have a way to go to management to help them take down barriers to do their job more efficiently and as cost effective as possible, much more effective than just a few people coming with ideas for improvement. Best practices globally for our sales and operating planning process, an S and OP process. This will help us improve our inventory management and our service levels to our customers at the global and local level. To date, our focus has been customer first in relation to our product portfolio. We're at a point now where we can internally focus on our products and our SKU rationalization. This will create additional efficiencies for our facilities and also allow us to trim the trail of light of low volume products in our product line and consolidation of light products. Logistics optimization is the next core zone of our strategy. This is all about leveraging our network. This is about best in class service to our customers at the most cost efficient method and use of our manufacturing facilities, warehouse network and freight and service suppliers. Lastly and certainly not least is accountability. We manage the supply chain with a small global leadership team with experts in operations, sourcing, finance, quality, regulatory, engineering and safety. That global team is mirrored by a regional team that acts in the geographies they live in that mirrors the strategy and the team at the global level. At the site level, all of our sites have KPIs. These are measured consistently and benchmarked throughout the organization. They all align to our global strategy and they're owned by the site management team. This further supports our think global, act global. The strategy is created at the global level and it's managed and implemented at the global level. As I mentioned before, I want to share with you a case study of how we can increase our capacity in our facilities without capital investment. So we have a facility in Tricate, Italy, in 2018 was experiencing increase in demand due to growth. To initially support that growth, we were spending significant money on overtime. The plant management team extended the workday. They created a split shift in the facility, which created 2 hours of scheduling time for production. What that meant was our vessels and capital equipment became available to make more batches. So every piece of capital equipment that we mix our batches in could produce more batches with the extended workday. The outcome of that was a 17% increase in production to support the demand in the market. Another outcome of that was a reduced operating expenses because we were able to eliminate the overtime we were spending to keep up with demand initially. We have great concern for our environment. We take seriously our responsibility as a corporate citizen around the world. The supply chain team is leveraging cross vertical social responsibility initiatives. We mentioned earlier in Tom's presentation, we operate a metal reclaim facility in North America where we recycle scrap from the industry, it's refined and reused in our production. We're looking to increase the use of our recycled materials, metals, plastics for example in our packaging. We work with external recycling companies in Europe and Asia to reclaim scrap from the industry and reuse it in our products as well. We have a wastewater excellence council that's made up of members of the supply chain around the world. They talk about best practices, reduce water usage, lower energy use and lower cost of operation in our facilities in treating the water. We have a regulatory intelligence team. They work really closely with R and D with a view of future regulatory landscapes to stay ahead of changes in regulations, so when we develop new products we can meet future regulations. Also, where possible, they look to eliminate hazardous raw materials from our formulas for the products we sell today. We've established a sustainability council within ESI. The focus of this team is internal and external. The team is made up of like minded ESI experts. They represent all product lines of our business and supply chain looking to identify new opportunities, as I mentioned, for our company and also for our customers. As Ben mentioned in the beginning, sustainability is a pillar of our strategy and will continue in the forefront of our activities internally and with our customers. Thank you for your time. I'd like to invite Carrie Dorman up here to do the next part of our presentation. Good morning, everyone. I'm Cary Gorman, CFO of Element Solutions. I've been with the company for more than 4 years and served in a variety of corporate finance roles in that time. Prior to my promotion to CFO, I served as Corporate Treasurer. In that role, I was responsible for Treasury, Investor Relations, M and A, FP and A, Strategy and Risk Management. My current role, I have the same functional responsibilities, but I've also included now tax, controllership and the operational finance in the region. In the 1st 2 or 3 months on the job, I traveled a lot around the world and I can comfortably say we've been a very impressive finance organization. I'm very proud to be a part of it. My section is ultimately about turning strategy and business model into cash flow. Our ESI businesses had very strong financial performance over the last 3 years. You've heard about some of this already from others, including Ben at the masked by the prior operating construct of our business. Today, it's free to be demonstrated here. So what have we shown? Over 3 years, we've demonstrated a 5% CAGR on the top line and improved our EBITDA margins by over 70 basis points. That strong growth above our end markets, which we believe the 5% is, was driven truly by the innovation of our teams and the market share gains that innovation has driven. The margin expansion was due to a combination of our product mix, the synergies associated with our integration and the operating leverage that we'll show you is inherent in our business model. Overall, these are very impressive trends, which we expect to continue well into the future. So we get a recurring question from analysts and investors about what the best metrics are to track our top line. Unfortunately or fortunately, the answer to this is not easy. But this is one of the beautiful things about our business model. We sell into a number of diversified and niche end markets. We sell critical products that are fully consumable and tied to customer OpEx, not to customer CapEx. We're driven not solely by units of production for our customers, but really the content in that unit. On the left, you can see the quarterly year over year performance of our sales in the dark blue line compared to the sales of the production of 2 of our key end markets, the mobile and the automotive market. I think it's clear from the slide that we demonstrated meaningful insulation from some of the volatility embedded in those underlying markets. This is because content per unit grows every year. Whether the end markets are up or down, there's more content today than there was yesterday and there'll be even more tomorrow. On the right, we demonstrate the remarkably stable gross margins that our business demonstrated through cycles over the last 7 or 8 years. We start by the legacy businesses McDermott and Allent and then the combined Element Solutions business over the last 3 years. We believe this stability in margins is due primarily to the highly variable cost structure of our supply chain and our ability to pass through raws to our customers, both of which you've heard Mike talk about. Importantly, both these characteristics are structural to our business model and combined with the operational excellence that we demonstrate, we believe this will drive outstanding financial performance. Our high margins and low capital intensity drive significant cash flows for this business. Again, some of this was masked by our previous capital structure and operating structure. So we restate it for you here today, normalizing for our new balance sheet. On the left, you can see a 50% CAGR of free cash flow from 2016 to 2018. Importantly, we also converted in each of those years adjusted EBITDA to free cash flow at more than a 50% rate. On the right, you can see the efficient use of our modest operating assets to generate significant free cash flow. Formulation is not very capital intensive. Our high margins really come from our innovation and service and not from investments in expensive equipment. Importantly, these assets we believe are sufficient to support many years of growth. So you should see this RONA continue to grow through time. We also believe that this high return on net assets is a very positive sign of business quality and it's something we're very proud of. So we've talked a lot today about sales growth and even about expanding EBITDA margins. And I wanted to spend just a few minutes this morning talking about the levers we have to grow cash flow even faster than EBITDA into the future. ESI is not a working capital intensive business. We require only modest investments in working capital to grow our top line. Some of the S and OP and inventory management initiatives that you heard Mike Orovsky talk about already should help reduce the amount of that investment required in the years to come. On CapEx in the middle of the slide, you can see that we spent meaningfully less than 2% of sales over the last couple of years and we expect that trend to continue. See our CapEx spend is not on expensive equipment for our production facilities. It's primarily on MRO, environmental health and safety investments and growth investments related to our applications labs and our technical service labs. As I said, I expect this spend to remain close to existing levels and to grow slower than sales into the future. Cash taxes are also an important opportunity for us. The sale and divestiture of the Arysta business reduced our debt load and simplified our intercompany value chain. Both of these actions created opportunities for us to drive improvements on our cash tax rate, some of which you've already seen and the rest we're working on, you should expect to see over the years to come. I think the key message here on this slide is that we're executing on a number of opportunities to grow cash flow even faster than EBITDA in the years to come. So as I said, the sale of Arista vastly improved our balance sheet. We believe our balance sheet is now a sign of strength for our business and our 3.5 times net leverage commitment helps preserve that strength. A few quick details on the slide. You can see here our balance sheet at the end of Q1 2019. It's important to note that we've fully removed interest rate risk from our capital structure through the hedge associated with our term loans. We also, as you can see, have no maturities until 2025 of any significance. So overall, it's a very healthy balance sheet position that we find ourselves in. I also want to point out here that we're giving ourselves credit for about $50,000,000 of net cash associated with the post closing adjustments from Arysta. Now we press released something on Friday night with respect to the $90,000,000 inflow that we expect. The $50,000,000 net number you see here a combination of that $90,000,000 inflow and several outflows primarily due to tax indemnities and other fees and expenses that we expect to incur over the next several quarters. I think if there's a simple message on this slide, it's that we really don't need to spend a lot of time on slides like this anymore, and that's a good thing. So on to the future. We've talked a lot about the status quo, the structure of our operating business. Now I want to talk about what we're going to do going forward. So I think we have a very simple equation on margin expansion. And again, you've heard about our commitment to drive EBITDA at a rate 50% faster than sales growth in the coming years. And that's what I'm going to spend most of the rest of my time talking about. The simple equation is a combination of product mix improvements, operating leverage that's inherent in our business model and targeted cost reduction initiatives that are already underway around the business. When we talk about product mix, I think we've heard it already today. We're involved in innovation and technology of important megatrends that are growing at very fast rates and changing the world we live in. This technology is growing quickly and is increasingly complex. And as you heard, complexity brings high margins for our business. Faster growth and higher margin drives product mix and margin expansion. The operating leverage and targeted cost savings are the focus of my Element Solutions has a relatively lean operating footprint and you can see here that we spend the majority of our OpEx on selling and marketing expense. This should not be surprising to any of you given what you've heard today about our close customer relationships, the local selling and technical service we provide. And it's an important part of the moat around our business. It's also important to note though that we view more than half of our SG and A to be fixed to a new dollar of sales. When you combine that with roughly 15% to 20% of our cost of sales being fixed, You get a very exciting operating leverage equation. This operating leverage translates effectively to a new product sold at $100 at an average gross margin generating incremental EBITDA well north of 30%. Overall, we have a compelling operating leverage equation. When you combine that with the defensibility of our variable cost supply chain, you get a very powerful outcome. So the 3rd pillar of our margin expansion equation is our targeted cost savings initiatives. Most of you know that we committed to taking $25,000,000 of cost out of our business in conjunction with the divestiture of Arysta. We're well on our way on that plan. So exiting Q1, we were run rating close to $20,000,000 of that savings and we expect to get close to all the remaining $5,000,000 in 2019. Where have those savings come from today? They've come from a combination of headcount reductions, both within the leadership team and the G and A organization, partly from the delayering of our corporate and holdco and the operating companies, but also from overall efficiencies. We've reduced vendor spend and public company costs. We've reduced our corporate audit and we've driven footprint rationalization and other efficiencies around the world. Now that we are done integrating, we are further optimizing our business, driving cost savings opportunities above the $25,000,000 we were already committed to. And I'll spend a moment on that now. Ben touched on it earlier that my team is driving a number of initiatives around G and A finance to take additional costs out of the business. Our goal is always to preserve or improve quality while reducing cost. Some of those key initiatives include financial shared services implementation on a global basis for both accounting, FP and A and other parts of the finance organization. This is well underway and we expect to start seeing the benefits of these in the next 1 or 2 years. Another initiative is an overall G and A organizational realignment, where we're looking at where we have people, what they do, where it can be done better with higher quality and ideally less expense. 3rd, we're making high returning investments in technology to improve efficiency, improve processes and standardize. When you combine all of this with some of the targeted supply chain initiatives that Mike spoke about earlier, we believe that we can generate an additional 1% of EBITDA margin expansion in our business by the end of 2021. So what does this all mean? I believe the business presentations today should have convinced all of you about our ability to grow above our end markets. I hope to have demonstrated here how we expect to convert those sales into higher EBITDA and even higher cash flow. If we achieve these objectives and effectively deploy our excess capital, we would expect to drive adjusted EPS to double by 2023 to $1.36 I firmly believe this is an exciting yet achievable set of financial targets for ESI. And with that, I'd like to turn it back to Ben to take us through capital allocation and close us out. Ben? Thanks, Carrie. So just a few slides on capital allocation and then key takeaways before Q and A and lunch. We've talked about this business being a balance of operational excellence and prudent capital allocation. With that capital allocation being predicated, the efficacy of that capital allocation being predicated on operational excellence. Together this forms a positive feedback loop. The better we run these businesses, the more cash we have to redeploy in interesting and compounding ways. It all starts with investing in the business. Now as you guys have heard over the course of the day, this isn't a business that requires material capital to grow or to sustain its margins. But there are very interesting opportunities to deploy capital to grow that's generally in the form of G and A, sales and marketing people and innovation. But necessarily, these businesses generate excess cash flow, which will have interesting opportunities to redeploy in compelling ways to compound value, talk about all of that. Importantly, all of this capital allocation is based on a commitment to maintain our leverage below 3.5x adjusted EBITDA. Let's talk about investing in the business first. We're a cost disciplined company and we're frugal in many ways, but not all dollars are created equally. We have opportunities to invest in growth and opportunities to invest in efficiency. The way we grow is by investing in innovation. These are new products, new applications, new markets. All of this innovation is customer led. As Scott said earlier, we don't create products and look for markets for them. Our innovation is based on understanding where our customers are going and investing to help get them there. And almost all of this innovation is incremental in nature. It's taking existing products and modifying them to meet new needs. It's low risk R and D and primarily D. Sales and marketing is another area where we can invest for growth. Our customer supply chains are moving and we need to be on the ground in advance to meet them to deliver the globally consistent quality and same products that we deliver everywhere around the world in those new markets. So we're putting people on the ground. We're putting innovation centers on the ground and we're investing to grow our footprint in line with the supply chains we serve. We're also investing in industry specific initiatives. So you would have heard about McDermott Alpha Automotive from Steve Brown. So I'd note that even in markets like today's where we're facing macro headwinds, we're still investing in the business. We know the levers we can pull to maintain margins while still having capital available to support long term growth initiatives. From a capital perspective, our investment is sometimes growth oriented, but in general, it's investing for efficiency. So we might expand a facility, we might invest in a new piece of equipment to enable a next generation of technology, we might put a research or application center in a new geography like we did in Taiwan recently. But in general, most of the spend is and S and maintenance oriented and it's very modest. This is not a business that has spikes in capital requirement. The level of CapEx has been consistent for many years and should continue to be so. Now we run our G and A and supply chain lean, but that doesn't mean that there aren't short term investments that we can make to drive long term efficiency. And so Carrie talked about shared services recently. Mike talked about supply chain initiative, building a procurement team. Those are investments. Those are new dollars over and above the dollars that we had in those functions previously. But there's a lot of opportunity to make those functions more efficient. From a shared services perspective, from a technology perspective, so much of what we do is done manually just by virtue of the way we brought these businesses together from a legacy perspective. We're fortunate that technology doesn't disrupt our business. It allows for our business to grow. But that doesn't mean we can't use technology in disruptive ways to add efficiency and manage cost. That's something that Carrie is spending a lot of time on and something that we're very passionate about. All of this is to say that there are opportunities for us to invest in growth, but there's certainly material excess cash flow for shareholder returns and other purposes. So let's talk a little bit about deploying excess capital. There are really 2 variables we think about when we think about deploying our excess capital. The first is our stock evaluation. Buying in our shares is the lowest risk way for us to return capital to shareholders. And the second is the availability of acquisitions and the valuation or the risk adjusted returns available through M and A. Now we have an underlying base return hurdle for any acquisition activity, but that returns hurdle grows as our valuation is lower. So as we evaluate potential bolt ons and I'd note importantly, we're talking about bolt on acquisitions and we'll talk more about our acquisition criteria, small transactions that bolster our organic growth, nothing transformative that is not our focus. But as we evaluate those, it's always against the other alternatives primarily buying in our shares. We have noted today that we would consider a dividend in the future, that's the right thing to do, but the baseline is share repurchases, which you've seen we're very comfortable doing at today's valuation levels. Just briefly again on acquisitions to drive this point home. Our acquisition criteria is crisp. We buy businesses that are aligned with existing capabilities and our existing business model. That means they'll have defensible moats, stable margins and similar operating models, meaning generating significant cash flow. We'd invest in attractive and growing end markets. What that boils down to is businesses that we make better by owning them with material cost synergies and revenue synergies to accelerate organic growth. A great case study for this is what we did with High-tech Korea last year. It was about a $30,000,000 acquisition of a business with excellent technology in the non conductive adhesive space. For the business Tom talked to you about our assembly business, those are generally conductive adhesives. Hy Tech had non conductive adhesives that went into the electronics market, so a lot of complementarity, very similar customers, almost exclusively in Korea. We were able to buy that business and its excellent technology for about 6 times. Taking that technology to our broader base of global customers has allowed us to build a $20,000,000 sales pipeline in less than a year since we've owned that business. That business only did about $20,000,000 of sales in the year prior to our acquisition. So here you see a case of buying a business at a reasonable price, adjacent to our markets, adding compelling technologies, generating cash and driving the top line. Those are the types of things from a size perspective and from a market perspective that we're going to be focused on. To sum it all up, for us to hit this objective that we've the stake we've put in the ground of $1.36 of doubling our EPS in 5 years, we need to do both, execute organically and redeploy capital efficiently. Simply taking our organic growth trajectory over the medium term, let's call it about a 4% top line, expanding margins and using the cash we generate to pay down debt, you get to a high single digit EPS CAGR. If we don't execute, if we stay flat and we take all of the cash we generate and buy in shares, you also get to a high single digit EPS kicker. So our objective here is necessarily doing both. It's growing the business and it's reinvesting our capital in smart and prudent ways. That's our commitment. So like Joe said, he summarized 35 years in about 60 seconds. I'm going to try to summarize 3 hours in one slide. We have 3 key takeaways today. And I'm hopeful that over the course of this day, you've seen and heard quite a bit to support each of these. The first is that we've got really excellent businesses. These are businesses positioned to grow and efficiently convert earnings to free cash flow. Our businesses have defensible leading market positions in the markets in which they participate with secular growth tailwinds to drive growth and very strong cash flow returns. That cash flow return on net assets that Carrie showed you, we think is the best testament to the quality of this business. From a limited asset base, we can generate really substantial free cash flow. 2nd, from the parade of individuals you've seen today, we've got a capable and deep leadership team. Our culture is one of performance and ownership orientation and something that you'll hear more about over the course of the day. And I'm hopeful that as you spend time over lunch with our team, you can get a sense for the things we're doing from a culture perspective, from an incentives perspective and really see how we've come together as one team driving towards our goals and objectives. And the last and importantly that we've demonstrated a clear pathway to deliver on our financial objectives. The first two really deliver the 3rd. We've got what we think is a challenging, but achievable set of financial objectives. And we think that through the presentations today and through the capabilities we have as a team that we can deliver on them and deliver compelling shareholder value in that context. And so with that, we will turn the floor open to questions. How are we going to do this? Are there microphones? And I'll invite Scott and Carrie to join me on stage. That would be great. People raise their hands and we'll bring microphones over to them. Is that the plan? Okay, great. Well, someone has to ask the first question. So I'm Dave Silver with CL King. And I was thinking about your business model and potential risks, which you probably managed for a long time. But if you could just discuss intellectual property and the way you protect it. So just briefly, I hear you say you're a formulator, not a producer. I hear you say that you have contract manufacturers, outside manufacturers and you have a very global production and distribution network heavily in Asia, including China. So could you just maybe discuss how what systems you have or what controls you have to prevent the leakage of your know how, right, not your patents and continue to present a differentiated product that generates higher margins overall. So sorry if I fumbled that, but intellectual property and your strategy for protecting it. It's a great question and it's something we're very, very focused on. So first place I'd start is that our value, our moat is both innovation and technical services. Simply the technology isn't all there is, but there is a lot to the technology. You made a comment also about contract manufacturing. We sell to contract manufacturers to assemblers, but in general we formulate our own products ourselves. The business has some patents, but a lot of it is trade secrets. And we protect it in multiple different ways. So first of all, we formulate ourselves. 2nd of all, when we have really important trade secreted technology and products, we'll send coated raws into this field for formulation. So what the we'll send a concentrate of the product without disclosing what that product is and the manufacturing team will know to put X parts of product A and Y parts of product B to formulate the product. So they won't actually know the specific formulation. Furthermore, as Scott took you through that example of how we deliver a solution as opposed to simply a product, there are multiple different steps to deliver any specific outcome. And each of those products is essential to the process. And very, very few people actually know what's in each of those different steps. So simply understanding what's in one of the steps doesn't get you to the same outcome. I'm sure I'm missing a few things around IP protection, but Scott, you want to add anything to that? The only thing I would add is that we do our fundamental resource research in areas where IP is valued and is defensible. And then to Ben's point, we will then distribute out coated materials so that we don't share that information in areas that it might not be quite so respected. And I apologize, but then kind of with that last slide, you answered this question, but it was about acquisition opportunities. So particularly in high innovation areas like electronics, I mean, I sense there's product development going on at universities, at research institutes and at a lot of startups. And your company with your customer relationships, your distribution network, etcetera, you could have a kind of a gateway that over time provides, in my opinion, a capital light pathway to organic growth leveraging your in house resources instead of capital. So can you talk about the viability of that, like maybe from a longer term perspective? I didn't I might have missed it. I didn't notice any of that in the presentation. It's a great question and observation. And the place to start is that our innovation teams often partner with universities to commercialize technology. The ArgoMax product that you saw that case study, the origins of it actually did come from a university. So we have deep relationships with universities to get seeds of technology and then we commercialize them and develop applications for them. From an M and A perspective, as we talked about, the areas we're going to focus on are technologies, geographies and products, small things that can become big in our portfolio. There is a very, very long pipeline of opportunities like that, dollars 10,000,000 $20,000,000 that we can quickly action on, and they're available at very attractive returns. We're not out shaking trees for M and A. This again is not a platform strategy to go buy big businesses and integrate them. It's an operational excellent strategy and we've got a very, very robust opportunity to return capital to shareholders through buybacks at attractive valuations today, which is where we're spending our time. But that doesn't mean we're going to turn down compelling small bolt ons in the interim. We'll have capital to do both. John? Good morning. John Tanwanteng from CJS and thank you for hosting us and taking our questions. To start with, in your latest proxy statement, you have a EPS target of $1.36 but it's a bit earlier, a year earlier than the official target you've been putting out in this presentation. First, could you talk about the discrepancy, number 1? Number 2, how achievable is that target? What tailwinds and operational efficiencies will it take to get there? And we can go from there. Thanks for that observation, John. It's a good question. And it's astute, which is to say that the objective we put the stake we put in the ground today was to double EPS in 5 years from 2018 to 2023. But we all have an incentive to do that in 4 years, which gives you a sense for what we're internally angling for and driving for and what we internally hope can be achievable. We deeply want to we deeply believe that we are a company that will do what we say we're going to do. And so by giving ourselves that extra year, we have confidence in our ability to deliver on that objective. But we certainly are driving towards that 4 year double that you've observed and that our incentive is tied to. Over and above that, the objectives that we put in, the objectives that build to that double are the same. And those are things that we think we can deliver year in, year out. Excess market growth, strong margin or strong earnings conversion and smart capital allocation. And if we do those things, we should be able to achieve it in 4 years, but we've given ourselves an extra year to ensure that we meet the objectives we communicate broadly to The Street. Great. Thanks. And maybe to expand a little bit on how you get there. You've committed to $20,000,000 in additional savings over the $25,000,000 you committed to when you announced the Arista divestiture. Can you talk about a little more details on what it's going to take to get there? How much it's going to cost then if there are additional savings beyond that if you go past 2021? Sure. So both Mike and Carrie in their presentations talked about adding efficiency to the business. The procurement opportunity is a robust one. Mike's ideas chest is generating 1,000,000 of dollars of opportunities for savings from supply chain and Carrie's opportunities in shared services and from technology are really material. As I said before, we do a lot of things manually and we can introduce automation to make the business more efficient. So yes, we talked about a point of margin expansion over 2 years that triangulates to about $20,000,000 And this is evolution and a continuous improvement opportunity and new technology and new capabilities will enable us to drive even more efficiency. We won't stop there. And I do believe that there is excess opportunity as you look out over a few more years through better technology implementation and better systems across the company. Hey guys, thanks for the presentation. Dan Jester from Citi. So just first on 5 gs, can you talk a little bit more about the roadmap that some of your customers are talking to you about? I think one of the presentations there was a comment about your customers give you maybe a couple of year roadmap for innovation where they see the market going. So can you just expand upon what you're seeing? And for your portfolio specifically, are there gaps for you to go to market for the 5 gs opportunity that you need to fill or anything that is going to prevent you from fully capitalizing on that when it accelerates in the next year or 2? I'll start and I'll turn it to Scott after that. For starters, 5 gs production is beginning this year, but we don't expect full ramp of that until next year and maybe even the year after. There have been some delays in infrastructure investment. And until that infrastructure is in place, the devices won't penetrate is our best estimation. From a technology perspective, we should be as good as anyone in the market to capture that market. And we know our customers' roadmaps. We through these acquisitions, we built the complementary portfolios that should meet all of the needs within our markets. And there shouldn't be any gaps from our ability that would prevent us to capture our share and more of the technology and opportunity there. I don't know Scott if there's anything you'd add. Yes. I would just say that the rollout and implementation of 5 gs is a fairly long roadmap. There's an infrastructure that needs to be built first in order to handle just the communication of 5 gs devices. I think there's a real opportunity for us when you look at how we are crossing across our business verticals. Automotive will be a huge consumer of 5 gs. A lot of the safety systems rely on that speed of communication. So our ability to leverage across traditional printed circuit manufacturing into automotive should provide good long term growth for us and hopefully a differentiated solution in 5 gs. But it's a multi year rollout for sure. And then throughout the presentations this morning, I think it was fairly clear about the synergies between your electronics portfolio and some of the businesses in your industrial portfolio. It was less clear to me about the synergies between graphics and energy the rest of your portfolio. So can you just talk about why those businesses have synergies with the rest of your portfolio? Thanks. Sure. So the place to start, as Scott, I think very aptly covered on his first slide, these are businesses that have very similar operating model, similar metrics, very high cash flow assets that fit from a portfolio standpoint, from a cash flow perspective. They generate a lot of cash. The other thing that they provide us with is surface area for incremental investments, right? Given the cash flow characteristics of these businesses being able to deploy that cash opportunistically into different markets is very attractive for us. And so there are interesting technologies around the printing side of things and that graphics business by the way does have some applications in automotive as well. In the energy space, we've got a great market position there, but it's we're in a very small market. And it would be very easy for us to materially expand our addressable market with modest investment behind that space, such that we can really grow and accelerate our growth rate. So we like the optionality that the broader portfolio provides to us. It gives us flexibility from a cash flow perspective or from a cash flow deployment perspective. We think the portfolio fits quite nicely together. Thank you for this presentation today. Jeremiah Taton from Stifel Nicolaus Credit Research. I wanted to know if you could speak more to the committed leverage ratio. I understand you have 3.5x commitment. How confidently can you speak to both sides of the equation there? How much of a commitment can you give to debt holders that you're not going to make, as you would say, a transformative transaction? And then also, under stressful macro conditions and headwinds, how confident are you for the stability of your EBITDA? And then if I could, you mentioned using excess cash to pay down debt. Would you consider that to be an opportunistic purchase? Or do you have sort of a roadmap for possibly using excess cash for that method? In December, your bonds traded under 93. Would you consider a time like that to make an opportunistic debt repurchase? Or would you feel more confident sort of during the good times using some of your cash to maybe pay off when you're trading over par as you are now? Thank you. Sure. A lot of questions there. Sorry about that. No, it's all right. The place to start is with our commitment to 3.5 times. So these businesses can support more leverage in that. We've demonstrated that. They've demonstrated that as private companies and they've demonstrated that as public companies in the recent past where they were not starved of investment capital. They performed well, with leverage north of 5 times. That's not to say that that's the right amount of leverage for these businesses. We've learned from our experience and we understand from a cost of capital perspective, it's prudent to keep leverage south of 3.5 times. And so that's how we've triangulated on that metric or on that level as the right level for these businesses. It's a strong BB from the ratings agencies and an affordable cost of debt. That having been said, if there is a perception and we get the feedback that that's too high of a level of debt for optimizing our equity value, the nice thing about being levered at 3.5x is that in 2 quarters we can be at 3x. And so we have flexibility to bring that down if that's the right thing to We don't believe that to be the right thing to do right now. And we think that over time as we put cash on the balance sheet, it will be clear that 3.5x is an appropriate level and allow us to generate meaningful cash, all the cash isn't going to serve as debt as it did in our prior iteration. So that's how we think about 3.5 times. With regard to your question about stability of EBITDA, I'm hopeful that the presentation today demonstrated to you the stability of our margins, our variable cost structure, our ability to generate cash in all market conditions. And our Q1 was a case study in that, where we faced material macro headwinds, our top line was off, but our EBITDA margin expanded. So we think that 3.5x and as a threat, as a cap is appropriate and staying a little bit below that is prudent just to give ourselves a little bit of room. Your other questions? With regard to paying down debt, we've got what we think is a very attractive capital structure right now with low cost term loans and a reasonable cost of our bonds. We'll always be opportunistic and deploy capital in what we think is the best way to drive shareholder value. In some cases that maybe to pay down debt and maybe to opportunistically repurchase bonds. But right now with free cash flow, we're looking at share repurchases primarily. And that's where we're spending our time right now, not shaking trees for acquisitions, looking at buying in shares. Steve Byrne, Bank of America. Can you characterize the key drivers of this EPS doubling in 4 or 5 years? Is it primarily organic growth? How much of it is potential acquisitions versus share repo? Sure. I think that one of my last slides spoke to that, which is to say that organic execution, right, without any cash flow deployment gets you to the high single digits from an EPS compounding perspective. And the balance of that is from capital allocation. And we don't have a crystal ball that will serve up what the opportunities are available to us to compound that value to deploy that capital. Looking at today's world, it's share repurchases. But we shouldn't say that that's all we're going to do. We are committed to redeploying excess capital and returning it to shareholders. The form for that will be determined. We're also open to small bolt on acquisitions that will be highly accretive at attractive returns. Some combination of those give you the excess return that gets you to that 15% EPS CAGR over 5 years, hopefully a double and 4. And have you quantified the value of the products that you sell into the internal combustion engine vehicles versus EVs? What's that average dollar value? That's a tricky question because not all cars are created equal, right? So there are electric vehicles in China that have very little content and in the high end electric vehicles, Teslas have a lot of content, for example. In certain combustion engine cars, you've got a ton of decorative content and some of them are lower end. What we put on the slide here is that we've got $30 to $50 of content in a today car, but that's generally a higher end car and we've got an opportunity to double that to $75 for next generation electric vehicles. But that shouldn't speak to all electric vehicles or all next generation cars. But that's we think there's an opportunity for us to double our content per vehicle. I don't know, Scott, if there's anything you'd add to that? No. I think that's right, Ben. There's 90,000,000 light vehicles a year or something sold, but we clearly aren't focused on that entire market because the features just aren't there. And also the drive to electric vehicles is also going to be a stepwise longer term process. So you've got hybrid vehicles, for example, a combination of both. So the content in those will be substantially more than we have today. So yes, I would agree with Ben. We think we have the opportunity to double the content available to us. Yes. Thank you. Jim Sheehan from SunTrust. Can you talk about your content your the content rising content story in automotive in particular? Do you expect your market share gain and pricing improvement to maintain a constant level of organic growth over automotive production or does that fluctuate over time? It's a good question. We've demonstrated above market growth relative to auto in the past several years and we expect that to continue. The content story is one that is has been linear, right? Automotive manufacturers aren't taking content out, they're adding content. And so it should be that was developed for that market in a unique way and absolutely changes the functionality and the capabilities of electric vehicles. So we've seen rapid uptake of that product, which is really driving material excess growth for that part of the market. I think it should generally be linear with some step changes. I don't know if there's anything you'd add. The only thing I would add is, when you heard Steve's presentation about McDermott Alpha Automotive, that entire initiative is designed for us to capture a greater percentage of the share of these new technologies than we would historically. So, yes, above market growth should be our expectation. And then on your leverage target of 3.5x, and you addressed this a couple of times today, but I'm wondering about why you think that's an appropriate level relative to chemical sector peers, it still does seem a little high, versus specialty chemical peers. And I know you have some flexibility to change it if you want, but just initially, why do you think that is appropriate? Yes. So in an answer to Jeremiah's question earlier, I think we got to this, which is to say that the cash flow characteristics of this business, the stability of the cash flows, the stability of the margin, the limited capital requirements allow us to put us in a different class from a cash flow characteristics perspective relative to other participants in the industry. And what we're solving for is the best cost of capital, right? So we think at 3.5 times, we've got affordable debt that allows for material excess cash flow over and above debt service to do interesting things with and a stable rating. And it allows for us to have an optimum cost of capital. Now as we said, insofar as we get material persistent feedback that it's not the right number, that's the sort of thing that we can turn down in 2 quarters and have demonstrated the ability to generate that sort of cash and growth to enable for that. But based on triangulating from where we were, and working with the understanding the capital markets receptivity from a debt perspective, we think that 3.5x is an appropriate safe threshold. And just because our target our cap is 3.5 doesn't mean that that's our target. That doesn't mean we're going to sit at 3.5 all the time. And so we'll generate cash to show our delevering capability, which I think should give folks comfort that 3.5 is a safe level for this company. Kerry, I don't know if you had any thoughts on that. Just on the other side of that, you're at 3.3% now. You've given the top off payment you just got from the Arysta sale, you'll generate cash this quarter. Your share price is lower than what you bought shares in the past, which you're but I think on the previous quarter, you're like it would be more of a back end back half of the year before you reenter the market. Do you have thoughts on your current share price and reentering the markets currently with your share buyback? In general, we don't like to tell folks where we're going because it gets more expensive to go that way. So what I'd say is we're going to be opportunistic with regard to capital allocation over the course of the year. We think there's value in showing cash flow showing up on the balance sheet. And so that's something that we are triangulating with the buying opportunity in the market. Thank you. Hey, guys. Josh Spector with UBS. Question around R and D and the tech service. I thought that disclosing the 3% of sales on the tech service was helpful. I was curious how does that compare relative to peers since the R and D is kind of on the lower end relative to peers? Are you higher, the same lower on that other metric? I think the first place to start is what peers are you looking at, right? There aren't too many public companies with similar specifically similar end markets as we do and product classes as we do. I'd also note that our R and D has not our R and D level hasn't stifled our ability to grow in line with the in excess of the markets for many, many years. I don't know Scott if you want to talk a little bit more about relative investment to the market from an R and D perspective? Yes. I think the way we've structured our R and D organizations and our innovation teams, I think, is extremely efficient, which allows us that level of investment. And we're very focused. Like I said, we don't spend a lot of time trying to create new markets, for example. So our projects are very real time oriented, which I think gives us an above average return on that investment. And then the field based investment, we are actively adding to that at all times to meet the requirements of these products that we put into the field. So I don't think we're at any disadvantage to anyone we compete against in terms of the investment level we have. And I think our global teams stand with anybody in terms of their capabilities. So I think as Ben said, our level of investment hasn't prevented us from doing anything at this point. Thanks. And then for Carey, I guess on the tax optimization, what do you think the timeline is around that? And is that built into your EPS target over the next 5 years or would that be on top of that? Sure. So tax optimization is an ongoing and forever initiative, right? All else equal, there's upward pressure on the tax rate. Governments are looking to increase their revenues. And so we're fighting that every year. Some of these initiatives that we're working on are already materializing. And yes, there is a proportion of that embedded in our 5 year EPS target. But I would say you're going to see a glide path down. There is some sort of base level where our rate will not go below. We're still triangulating exactly what that is as we're working through some of the opportunities ahead of us. But I would expect over the next 2 or 3 years to see some more meaningful progress. But again, I think it's really important to note that we're doing things every day just to keep at the levels we're at, right? So the help on the balance sheet, the reduced balance sheet size, less of a need to bring cash back to the U. S. To pay interest, for example, all these things have created new opportunities that we didn't have a couple of months ago. And that's what's going to drive the next step of this. But yes, a bit of it's embedded and it'll be an ongoing project. Rosemarie Morbelli with Cabeli. I can see the relationship between the graphics is that something you would be, I mean, willing to sell? Is that something you would be willing to sell? Or are you planning in growing it so we go back to what the way you were and now we have 2 big entities, which are not related at all? I appreciate that question. And I think we spoke to this a little bit earlier. Our energy business is a beautiful business. It's a terrific cash flow generative business that generates really robust cash flows with very modest capital expenditures. Now we're not emotional about any of our businesses. And so if someone wants to pay us more than it's worth, we will be open to that. But that having been said, it's generating a lot of cash that we use to fund other interesting opportunities across the portfolio. And it also has adjacencies that are very compelling. Now that doesn't mean we're going to go buy some big energy business. That is not the takeaway you should have. It's to say that we have technologies in that business that could be applicable in other markets and we have capabilities in that business that could be expandable into larger markets. So through small investments, we can grow our addressable market materially, which will give us a lot more white space to grow organically. Again, we're not going to dilute the quality of our business. We have great businesses. We're not going to dilute the quality of our businesses through capital allocation, through acquisitions or otherwise, right? We think that there are equally high quality businesses that are in adjacent markets that we can enter organically alongside the Energy Solutions segment that will be fantastic for our shareholders and for compounding growth over time. Thanks. And then looking at what is going on in with our little trade war with China and the impact on your customers and, therefore, therefore the impact on your own businesses. If we don't come to some kind of a solution in the near term, what should we be looking for in terms of the impact on your business? Sure. So the place to start is that as you saw today, we manufacture close to our customers. So the tariffs themselves aren't having a material impact on our profitability, right? We're not seeing tariffs hitting our cost of goods. But there is an impact on our market health from the trade war. And we've seen that from confidence from manufacturers in Asia, and from demand levels. And if the tariffs drives prices higher, we'll see a persisting macro headwind, something that we've come to expect. That doesn't at all impact the secular growth trends that these businesses have. And we have a business model with flexible costs. So if we're not delivering on our objectives, we can pull the cost lever to deliver on our guidance. And so that's something that we're working on real time. As you know, our expectation for this year was for a slow first half and for a ramp in the second half. And if that ramp in the second half doesn't materialize, we'll use the levers at our disposal from a variable cost structure to tighten the reins a bit and continue to deliver on our commitments. Hey, I was curious about your incentive is aligned around an EPS target. Is there an adjustment to be made to whatever your incentive target is if you guys pay dividends? And if there isn't, is that a problem just in terms of how you think about your own desire to pay out dividends versus repurchases? It's a very good question. And I actually don't know the answer to that. Look, we will pay dividends if that's the right thing. If that's we will pay a dividend in the future if it's the right thing for us to do. That's not a 2019 decision. That's something in the future that we would consider. And I can't speak to what ramifications it has to our LPI. Do you know? Yes. We'll clarify. But I think the bigger point to make is that we're all large shareholders as right? So dividend accrues to our benefit. The dividend makes the stock more valuable that accrues to our benefit as well. So the incentives are aligned either way, but we'll clarify for you. Hi, Neel Kumar, Morgan Stanley. You highlighted semiconductor packaging as an area where you can grow at 2x GDP. I was just curious how has that segment been growing relative to the underlying market? And I think you also mentioned that it offers higher margins relative to the electronics business. I was just curious if you can help quantify that as well. Sure. So we don't like to get into product line margins. It's a dangerous path. But in general, our semiconductor business, when you take out the impact of metals, has higher margins than our average margin. And that's just driven by the even wider moats around the semiconductor space than around the circuit board space. Very wide moats around our businesses, semiconductor is wider, technical requirements, specifications are extraordinary. Semiconductor packaging space as we explained is a really dynamic space. It's growing very quickly as driven by more than more as we talked about, right? The amount of expense associated with getting to a new node is just astronomical. And so our customers and different customers either PCB customers, semiconductor customers and assembly customers are coming at these different ways. So there isn't any standard around semiconductor packaging. There's a lot of innovation and it plays within each of our businesses. And so we're at this very interesting interconnect, pun intended, where none of our competitors really have capability across the semiconductor circuit board and assembly space. So not only is that market growing nicely, but we should really benefit from it because we can bring to bear so many different technologies. Hi. Just with respect to margins in general, can you talk about your Industrial and your Circuitry Solutions segment just in the context of you mentioned Adatech as being a competitor there. They obviously bought were bought by Carlyle, had around 22%, 23% margins on an EBITDA basis and in 2 years are now at 32%. So I'm curious, those 2 combined segments were up 50% of your business. Can you walk me through, is it a mix issue or volume issue or whatnot as to why margins cannot expand further than what you've detailed in the presentation? I think the place to start is that margins can expand further than what we've detailed in the presentation. It's an evolution and we do have a margin opportunity. AddoTech has excellent margins. There are some structural differences in our company in there. So for instance, we sell you saw from Mike, dollars 300,000,000 of metals. Those are pass through. Addotech doesn't have an assembly business. So we have about a point and a half of pass through sales that is a differentiator or a difference between our margin profile and Adotec's. We love that business. It's a highly value added business, particularly in the context of our portfolio. But necessarily structurally, their margins and our margins are going to be different on that basis. We have other opportunities to drive our margins higher through efficiencies, through leveraging our G and A and our finance functions and those are things we're going to be working on. If you look at the McDermott business prior to all of the acquisitions that we have, it was at about a 25%, 26% EBITDA margin. And that is something now if you burden that by the metals, you get to a sense about a 25%. I think that should be our goal, right? Driving this business to a mid to high 20 percent EBITDA margin. And we think we can do that over the next several years and approach the AddoTech margin on a like for like basis, if you will, over time. Yes. I would on the like for like point, I'd also point out we obviously are a public company and have public company costs that we support with our business and that's a few points of EBITDA margin right there. And just so I can understand a little bit more on the assembly side, is it correct if I recall when it was part of Allent that there should be some margin expansion as you move away from the waveform technology that's now at 35%, right? And I believe the Elant story had always been this could be a 40% margin plus business. Is that still something that's feasible? Yes. So Allent reported net sales value. So they actually removed the metals. And we don't do that because there is a very, very modest margin on the metal that we saw in low single digits. And so it's not quite appropriate to take the metals out. So that 40% number that you're using isn't exactly like for like. But it's true that as we innovate in the assembly business and get into smaller form factors, there's less metal content. And so as the mix improves towards newer technologies, there should be less metal and higher margins associated with that. So you should see compounding effect on your gross margins. Yes. Sure. Thank you for all the disclosure today. I guess one kind of specific one was on the EVOLVE opportunity that you called out. Could you just talk about kind of how large that opportunity could be and then where we are in terms of the regulatory side of it? And then are your competitors developing this as well? Or are you kind of much ahead in terms of technology? I guess that's the first one. The second is just you alluded to the second half ramp. I was curious kind of relative to when you gave guidance and gave the update on the earnings call, just have you started to see more kind of increased activity, customer leads, just how is kind of general demand going for you guys? So I'll answer your first your second question first. On our call in early May, our first quarter earnings call, we talked about April looking like March, and that trend has persisted. So I call it a stabilization from a recent performance perspective and no material update to guidance or anything like that since in the 3 weeks since our call. With regard to EVOLVE, it's an incredible opportunity as we outlined. The full ban doesn't take effect quite yet. There's still a year or so. But we're seeing a really fast increased adoption of the product in the market. Of course, our competitors are trying to bring to market an alternative. This eliminates a large portion of their business when this comes into effect. And so there are competitors out there, but we are away, away far distance ahead of them based on the amount of time we've spent on this product from the get go and the iterations we've done with our customers to ensure its efficacy. Scott, do you want to talk about the size of the market opportunity and give any more color? Yes. I would say the global plating on plastics market that you look at is in the 100 of 1,000,000 of dollars on a global basis. So our ability not only to protect our existing share of that, but to take share as these regulations come into play is extremely exciting. So to Ben's point, our commitment to developing this technology several years ago and to stay with it has gotten us in this leadership position. And we expect to see meaningful share gain growth in that space for years to come. Okay. Well, that seems like to have wrapped it up. We really appreciate everyone's attention. We appreciate everyone's engagement and all these questions. We look forward to keeping in contact and continuing to deliver on the compelling objectives we've outlined today and seeing that translate to material shareholder value. Thanks very much

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