Kraton Performance Polymers' CEO Discusses Q4 2012 Results - Earnings Call Transcript
February 28, 2013 1:56 PM ET
Kraton Performance Polymers, Inc. (KRA)
Q4 2012 Earnings Call
February 28, 2013 9:00 am ET
Gene Shiels - Director, IR
Kevin Fogarty - President & CEO
Steve Tremblay - VP & CFO
Edward Yang - Oppenheimer
Mike Sison - KeyBanc
Brian Maguire - Goldman Sachs
Alex Yefremov - Bank of America-Merrill Lynch
Abhi Rajendran - Credit Suisse
Andy Cash - SunTrust Robinson Humphrey
Christopher Butler - Sidoti & Company
Gregg Goodnight - UBS
Bill Hoffman - RBC Capital Management
Good morning and welcome to the Kraton Performance Polymers Incorporated Fourth Quarter and Full Year ending 2012 Earnings Conference Call. My name is Marla and I will be your conference facilitator. At this time all participants are in a listen-only mode. Following the company's prepared remarks there will be a question-and-answer period. (Operator Instructions) Today's conference is being recorded. If you have any objections you may disconnect at this time.
I will now turn the call over to Mr. Gene Shiels, Director of Investor Relations.
Thank you, Marla. Good morning and welcome to Kraton Performance Polymers fourth quarter and full year 2012 earnings call. With me on the call this morning are Kevin Fogarty, our President and Chief Executive Officer; and Steve Tremblay, our Vice President and Chief Financial Officer.
Before we review results for the fourth quarter and full year 2012, I'll draw your attention to the disclaimers on the forward-looking information and the use of non-GAAP measures included in our presentation this morning and in yesterday's earnings press release. During our call this morning we may make certain comments that are not statements of historical facts and thus constitute forward looking statements.
Investors are cautioned that the risks, uncertainties and other factors that may cause Kraton's actual performance to be significantly different from expectations stated or implied by any forward looking statements we make today. Our business outlook is subject to a number of Risk Factors. As the format of this morning's presentation does not permit a full discussion of these Risk Factors, please refer to our Forms 10-K, 10-Q and other regulatory filings that are available on the Investor Relation section of our website.
With regard to the use of non-GAAP financial measures a reconciliation of EBITDA, adjusted EBITDA, and adjusted EBITDA at ECRC to net income or loss, and a gross profit at ECRC to gross profit is provided in yesterday's earnings release and is included in the appendix to the material we'll review on this call. Following our prepared remarks, we'll open the line for your questions.
I'll now turn the call over to Kevin Fogarty.
Thank you, Gene. Good morning everyone. Now before we review our fourth quarter and full year 2012 results, I would like to comment on a very significant and positive development for our Asia HSBC expansion plans.
I've just returned from Taiwan, and you've hopefully have seen from our press release just yesterday in Taiwan we executed a definitive documentation that provides for the formation of our 50/50 joint venture with Formosa Petrochemical Corporation, paving the way for the construction of a 30 kiloton HSBC plant at Formosa's Petrochemical site in Mailiao, Taiwan.
As we've previously disclosed, progress on the proposed joint venture project with Formosa was initially delayed as we waited granting of the necessary environmental permit. When the permit was awarded in July of last year, there were conditions associated with the permit that Formosa deemed too restrictive on its ability to conduct its operations at Mailiao. With no timeframe for potential resolution, it became necessary for us to move forward with a valuation of alternatives to build a HSBC plant on a standalone basis. Fortunately Formosa was successful in resolving the conditions associated with the permit and this progress led to the execution of documents yesterday in Taiwan.
Needless to say, we are extremely pleased with this recent development. We are honored to be aligned with Formosa one of the world's leading petrochemical chemicals, and we believe that our joint venture with Formosa provides the most attractive option for our HSBC Asia expansion plans, given factors such as onsite feedstock availability at Formosa's extensive resources, which will reduce execution risk and ensure successful completion of the project.
As you might have imagined we're now moving forward as quickly as we can with the project, based upon prior engineering design work, our current estimates of construction timeline, and subject to timely receipt of construction permits in a way, we anticipate mechanical completion as early as mid-2015.
As outlined in yesterday's press release, we expect the project to cost in excess of $200 million. Kraton and Formosa will each fund 50% of the capital needs of the joint venture, and we currently estimate that our share funding for the joint venture will be approximately $50 million, with approximately $40 million to be funded in 2013. It's our intension to pursue financing for the project at the joint venture level. We look forward to bringing you project updates as we move forward.
Now a significant aspect of the joint venture is that Kraton will retain rights to purchase all off-take from the plant, which we intend to market through our worldwide organization. While we will be obligated to purchase a minimum volume each year, the obligation corporates an escalating ramp-up schedule designed to balance joint venture success, with the anticipated growth we expect to see for our HSBC products, and new innovations.
Now, let me turn to results for the fourth quarter and full year 2012. Our fourth quarter sales volume was 67.2 kilotons, which was up 9% compared to the 61.9 kilotons we reported in the fourth quarter of 2011.
Sales revenue was $296 million, down approximately $8 million or 3% year-on-year. The revenue decrease reflects lower average product sales prices principally associated with lower monomer prices, as well as head wins associated with foreign currency exchange rates. And these factors were partially offset by the contribution from higher sales volume compared to the fourth quarter of 2011.
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