Business News

Kraton Polymers LLC Announces Second Quarter 2009 Financial Results

Wednesday 12. August 2009 - Kraton Polymers LLC (Kraton), a leading global producer of engineered polymers, announces financial results for the three and six months ended June 30, 2009.

Total operating revenues amounted to $244 million for the three months ended June 30, 2009, a decrease of $101 million, or 29%, compared to total operating revenues of $345 million for the three months ended June 30, 2008. For the six months ended June 30, 2009, total operating revenues amounted to $429 million, a decrease of $183 million, or 30%, compared to total operating revenues of $612 million for the six months ended June 30, 2008.

Reported earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to $17 million for the three months ended June 30, 2009, a decrease of $18 million, or 51%, compared to reported EBITDA of $35 million for the three months ended June 30, 2008. For the six months ended June 30, 2009, reported EBITDA amounted to $22 million, a decrease of $29 million, or 57%, compared to reported EBITDA of $51 million for the six months ended June 30, 2008. Net Loss amounted to $4 million for the three months ended June 30, 2009, a decrease of $14 million compared to Net Income of $10 million in the same period in 2008. For the six months ended June 30, 2009, Net Loss amounted to $21 million, a decrease of $22 million compared to Net Income of $1 million in the same period in 2008.

Our reported EBITDA is based on the first-in, first-out (FIFO) basis of accounting. Our second quarter and first half 2009 results were negatively impacted by approximately $8 million and $44 million, respectively, reflecting the spread between FIFO cost and replacement cost, resulting from the sale of higher-cost inventory produced when feedstock prices were above the second quarter and first half replacement cost. Conversely, our second quarter and first half 2008 results were positively impacted by approximately $12 million and $17 million, respectively, to reflect a similar FIFO versus replacement cost measurement. Excluding the aforementioned FIFO versus replacement cost spreads in the second quarter and first half of 2009 and 2008, respectively, Kraton’s second quarter and first half 2009 adjusted EBITDA amounted to $25 and $67 million, respectively, compared to $23 million and $34 million for the same periods in 2008.

Last Twelve Months (LTM) Bank EBITDA, a measure used to determine compliance with our debt covenants, totalled $137 million for the LTM ended June 30, 2009. Kraton was in compliance with its debt covenants at June 30, 2009. A reconciliation of Net Income (Loss) to LTM Bank EBITDA is attached.

“The effects of the global economic slowdown on Kraton’s business appeared to begin to shift to recovery in the second quarter of 2009 as evidenced by our quarterly sales volume, as compared to the previous year’s comparable quarter, which improved from a 39% decline in the first quarter of 2009 to a 24% decline in the second quarter of 2009, with our June 2009 sales volume narrowing to a 12% decline compared to June 2008. Given the challenging environment in which we have been operating, we are pleased with the results achieved in the second quarter. We also retired an additional $7 million face value of our 8.125% Notes in the most recent quarter, bringing our total debt reduction to $86 million from year end 2008. As a result of these improvements and actions, we ended the second quarter comfortably in compliance with our debt covenants,” said Kevin M. Fogarty, Kraton’s President and Chief Executive Officer.

Mr. Fogarty further added, “For 2009, to offset the effects of the economic slowdown, we set a $10 million cost reduction goal that we currently expect to exceed by $7 million to $9 million. These actions, coupled with our success in improving base margins, have resulted in an adjusted EBITDA per ton in 2009 that is approximately two times better than our 2008 performance. However, while aggressively managing costs is a Kraton focus, innovation-led growth remains the cornerstone of Kraton’s past and future. As such, we are very excited to report progress achieved this year in commercializing a number of new innovations that we believe will accelerate our growth, benefiting both existing and new customers, and the global markets we serve. We continue to expect productivity gains from our previously announced upgrades to critical infrastructure, including a new global SAP system; new process control systems at our flagship plant in Belpre, Ohio; and the new Kraton Innovation Center in Houston. As the industry leader, we believe it remains critical to prudently manage costs while also funding new initiatives to enhance innovation and productivity to ensure that Kraton will be well positioned when the global economy normalizes fully.”

Recent Developments

In April 2009 we announced a series of new formulations designed to support lower Volatile Organic Compound (VOC) requirements and reduce costs associated with contact adhesives. The unique structure of the styrenic block copolymers provides key advantages to formulators. The end block enables cohesion, good load bearing properties and temperature resistance, while the center block promotes adhesion and elongation.
In April 2009 we announced an innovation with proven ability to double styrene-butadiene-styrene (SBS) modification levels in pre-modified asphalt emulsions. These new high polymer content or “HPC” emulsions are a result of Kraton utilizing our latest development in high vinyl products. The effects of the enhanced mechanical properties can enable a transformation of traditional modified asphalt emulsion applications as well as open the door to new opportunities.
In May 2009 we announced our recent commercialization of Kraton G1645, a polymer that creates new opportunities to replace PVC in medical applications. In recent years there has been increased demand for eco-friendly, better performing products versus conventional elastomers. We have delivered breakthrough technology offering a clear, sterilizable, strong elastomer that offers a broad formulating window without the need for phthalate plasticizers. Our technology provides a solution that is eco-friendly and ultra-clear in comparison to PVC or silicone.
In June 2009 we announced our newly commercialized NexarTM polymer product family. The Nexar polymer family is uniquely designed for high performance breathable fabrics, water transport, filtration and separation applications.
In June 2009 we announced new advances in pressure sensitive adhesives for the tape market. We have determined it is now possible to blend Kraton styrene-isoprene-butadiene-styrene (SIBS) and styrene-butadiene-styrene (SBS) polymers with rosin ester tackifying resins. The initial testing indicates the unique combination of Kraton SIBS and SBS with a rosin ester can produce a tape with properties similar to a traditional SIS and C5 hydrocarbon resin formulation, resulting in a system cost savings of 10% to 20%. The SIBS product is more compatible with the SBS, allowing higher concentrations of the lower cost SBS in tape formulations while maintaining excellent pressure sensitive performance.
In June 2009 we announced the grand opening of our state-of-the-art Kraton Innovation Center located in the West Houston Energy Corridor. The world-class technology facility allows Kraton to upgrade and expand its current capabilities in ways that we believe will build on existing synergies and significantly improve process efficiencies for the ultimate benefit of our customers.
In July 2009 we announced the implementation of a series of global price increases which were generally broad-based across our end-use markets and in response to the increase in raw material and energy costs. These announced global price increases were effective August 1, 2009.