Couple of housekeeping items. There is no planned fire drill today at the hotel. So if you hear an alarm, it’s probably the real thing. The best way for you to exit the building is the way you came in, past the desk where you signed in. also the rest rooms are located down the hallway just on the other side of that desk as you came in.Brian if you could hit the next slide for me. Just a few comments this morning on forward-looking issues over the course of the presentations today, we’ll probably touch on a number of topics, some of which may be considered as forward-looking statements. Some of these statements are subject to a number of risk factors and over the course of the presentation today in the format may not permit a full disclosure or discussion of those associated risk factors. So I encourage you to refer to our Form 10-K, 10-Q and other regulatory filings available on our website for a full discussion of those risk factors. We also may touch on some non-GAAP financial measures over the course of the presentation today and we’ve got some reconciliations of those in the relevant presentation, so I want to focus your attention on that. At this point, I have the opportunity to introduce Dan Smith. Dan for many of you probably doesn’t need any explanation; many of you know Dan from his time in the industry over the past number of years. But Dan joined Kraton in 2008 as Chairman. And again, most of you know him from his long and distinguished career as he was CEO and Chairman of Lyondell chemical company. So with that is a little bit of a brief introduction. I’d like to turn the podium over to Dan. Dan Smith Thank you very much Gene and I’d like to add my welcome to all of you. I think you’re in for a real treat today. This is a unique opportunity to learn a lot more about what I think is one of the more exciting opportunities in the chemical industry. I’ve told many of you before that I’ve been well acquainted with Kraton for many years, back to the years that Kraton was really affiliated shoe soles and a little more than that. Although, what you didn’t know at that point in time was there was a lot of technology being worked behind the scenes that never seemed to go anywhere? But happily since I joined about the same time that, or exactly the same time that Kevin moved up to the CEO Job, we’ve seen a tremendous transformation in this company. And I think if you take the opportunity here to talk around and visit with the members of management who are here, and see more of what’s going on in the company, you’ll appreciate what I thought since my joining that is these people are the most dedicated and the most talented and the most accomplished people at moving something that always had a lot of potential but never seem to realize it to one that’s realizing it in real time in the marketplace.
Now, the backdrop for the last five years has not exactly been kind. I think we’d all agree that the turmoil and economic situation around the world has probably been unprecedented in most of our lifetimes. On top of the ordinary cyclical challenges that we face in some of the feedstocks. So this management team over the last five years has learned to surf as well as to develop new products and get those products out into the market By surfing I mean, trying to stay in anticipation of what’s happening in the feedstock world and they’ve done it everywhere except learning how to change the perceptions that come from inventory accounting which as you get into the guts of what goes on here is perverse and it makes the earnings look very poor when indeed the cash is looking very good. So, as we get through some of this may be lunch time a little bit more of that that but really spend the time today to understand the people, the talent that we’ve got moving this forward, the innovation going on in this company and the bright, bring future that we face in the future. So again, thank you for your attendance today and please take advantage and learn all you can.Now with that, let`s turn it over to our leader, Kevin Fogarty, who has been driving this change for the last five years. Kevin Fogarty Good morning everyone. I want to welcome those in attendance today and of course those participating via our webcast. It is a true honor to host our very first investor day for Kraton. We’re now a public company for going on 2.5 years. We spent, I believe, quite a bit of time with investors to outline and share our business strategy, our vision for growth and I think this is the next evolution of that discussion such that we can take the time and share with you more detail, answering many of the questions, in particular around our product portfolio today and where we believe it will go to in the next five years that you’ve asked of us. And I’m looking forward to sharing that perspective with you.
I’m also equally pleased that you’re going to get the opportunity to hear directly from the people in Kraton, the leaders that are making it happen in the global marketplace, day in and day out. I think many times we get around needless to say in our roadshows investor presentations and you hear from myself and you hear from Steve and Gene, but you’re going to hear firsthand from our business leaders today and our innovation leaders that are doing this each and every day living and breathing with the passion we describe as verve at Kraton to really drive portfolio change at Kraton which is exactly how we describe our business strategy.I think as both Dan and Gene said, we have a loaded agenda and our goal is to keep that agenda on time so that people, if they have to choose to be selective in terms of what they want to listen in on or later go back and listen to what was said, we’re going to stay on that agenda and then decide whether or not we can allow questions during the session or whether or not we’ll just use the Q&A session at the end in its entirety for that wrap up. I’d also encourage you because we’ve taken the time to also include a number of our market development and innovation managers to be present here and we prepared exhibitions of our key end uses and our key innovation platforms take the time during the breaks, during the lunch hour session and meet with these people because at the end of the day again, they are the ones that are the brains and the know-how behind the innovations. They are working with our customers and our innovation partners to again commercialize, to make this strategy real and they are very excited to share and talk about these innovations and I would not be remissive as a matter of fact and not emphasizing to you to take the time to do that because I think you’ll learn a lot about the things that we’ve been talking about over the last couple of years.
So the next slide, growth through innovation and differentiation, I mean at the end of the day, that’s how we summarize who we are and if you want to try to blow down that strategy into four buckets of priority activities in Kraton, we try to listen here for you. Building a platform for future growth is absolutely essential to our business strategy. You all know about our HSBC expansion plans in Asia, our Vice President of Corporate Development, Damien Burke will walk you through that in the session after lunch, that where we are on that project with more detail on the actual project itself.The ongoing isoprene rubber latex expansion plans that we have, as many of you know, last year we completed the conversion of isoprene rubber manufacturing capability in Belpre, Ohio which was absolutely essential and then we also at the same time started up an expanded latex plant down in Brazil. Both of those projects were done on time and on budget and absolutely key to the businesses’ performance. But that’s not enough. We have to continue to expand that latex business in support of the very attractive customer growth that Richard Brennan, head of that business unit will talk about, I believe right after lunch. And in that regard we are now doubling the size of our capacity availability in Japan with our manufacturing partner in Japan. We have to build a pipeline for future innovations, you’ll hear of course about the platforms that we’ve been speaking a lot of today and how we believe those projects will commercialize over the next five years but that’s not enough. We have to continue to build on that innovation pipeline to ensure that we have those types of platforms evolving for many years to come and a great deal of the innovation teams work at Kraton is of course commercializing what we’re working on today is a high priority at which you know of but there is a lot of work going on behind the scenes in terms of the ideas that are generated that we expect will be talking about to investors for many years to come as this innovation vision just is an evergreen almost in terms of the project activity at Kraton as we drive that core metric which we call Vitality Index.
And then from time to time we will evaluate M&A opportunities that we believe would be a great tack on for the business with just two caveats of course. One is we are focused on things and activities or projects that we believe would be very complementary to the existing business strategy, they just have to be. They have to fit our innovation vision for Kraton. And of course be accretive in a way in which investors, you the investors would believe the opportunity that we’ve working on and developing makes the most sense for the company ultimately to increase shareholder value. So the platform for growth is clear. We have dedicated teams working on each of those endeavors and I’m very excited about the progress that we’ve made to date and the products we expect to be making over the coming three or five years.Address business environment is a core topic is not driven necessarily by anything we’re doing but we are a consumer of a very volatile raw material and that’s caused us to behave in such a way in the marketplace in reaction to that volatility and we’ve talked a lot with investors about how that volatility and raw material pricing has translated into in many cases some volatility or unpredictability in our volume trend. We are working on ways in which to try to trim that volatility. Of course the bottom line there is as I like to say, we want to try to make that butadiene and to some extent isoprene pricing model that exists in the marketplace today that we have again no control over. But we want to try to make it less and less relevant. And of course the easiest way to make that less and less relevant is to have margins and a portfolio of margins that are large enough that these quarterly or monthly moves on the part of this key raw material don’t have the meaningful effect and more importantly, the customers are going to have to continue on buying Kraton products in a more ratable way because the product itself is so unique to their business model that we have made enough sense the butadiene volatility less and less relevant and that’s something that we work tirelessly on. I would say that one of the questions that came up yesterday even in the earnings call about how we can think about our pricing model, that might actually aid in eliminating or dampening that volatility and volume is something also that we are working on an and I am talking about real-time pricing here.
The expansion of our customer base in the geographical regions that we serve, needless to say, a company like Kraton where Asia and the developing markets of Brazil and even Eastern Europe are so relevant to our business growth strategy, we spend a lot of time in those regions literally in each of end users. Those regions do have some main uses that are more applicable for example Asia certainly is an HSBC innovation priority for Kraton has been and will continue to be but nevertheless the great thing about Kraton in that market leadership position we have as have heard us say, is we’re able to provide products both today and innovation grades in the future that can serve pretty much any need our customers have unlike anybody else in the industry.Accelerate key innovation platforms. We’re going to talk about those today. You are going to hear a lot about them for us the name of the game is commercializing faster. What are we doing to commercialize faster? We for example in the case of our NEXAR development are very proud that this was a milestone year in terms of the first real commercialization of an innovation project that’s been almost five years in the development and you’re going hear about that on specifically today and we encourage you to visit with the NEXAR team out in the lobby at the bridge to learn more about that very unique first commercialization but that’s not it, we see still great opportunity for not just in the area of performance apparel but in industrial applications like water purification as well as their unique approach to HVAC to dress today’s very real sustainable needs of the industry. Ultimately through that successful commercialization of innovation, we will achieve the kind portfolio shift that we are going to outline for you today that is our expectation, that is what we work on, that’s what we believe and we are going to share with you where we are today in terms of the overall portfolio and for each of the end uses and we are expected to take them in the next five years.
And then we are establishing some financial goals that we held ourselves accountable to and it starts clearly with beginning with Vitality Index. We are going to walk you through how we are going to take our Vitality Index from today’s level and almost double it over the course of the next five years. We believe that through that process we’ll be able to generate at least 10% compounded annual growth rate in adjusted EBITDA, driving both therefore the bottom line performance of the company and at the same time we’re very sensitive as you know to the types of margins that should be indicative of the portfolio that we offer our customers and that that standard benchmark of expecting to have sustainable mid-teen EBITDA returns is certainly not only our objective but we believe very feasible.Now the agenda for today to take you through all that material again. It’s pretty aggressive agenda. You’re going to hear from a lot of our business leaders. We are going to try to again stay on schedule. Effectively what we are going to do is start with Steve Tremblay taking you through some financial measures of the company, then we are going from there directly to innovation, you’ll hear from our Head of Research and Development, Dr. Lothar Freund. Before Lothar will be Holger Jung, our Head of Commercialization to give you a market update and then we’ll take you through the innovation. And I’ll walk you through each of the end users and I think that is a great flow that will then lead into ultimately a discussion around our innovation platform primarily NEXAR or Cariflex in the afternoon as well as the project itself. The team that you’ll see here today about half of my leadership team is presenting for you specifically this afternoon and I’m not going to walk you through them, they’re going to introduce themselves as they go through their own presentation materials but in addition to that you’ll hear from our end use leaders who are actually again driving each of end users on a day to day basis and I think that is the first time you probably heard directly from these individuals and I think you’ll find their knowledge of their end uses to be not only excellent, but their outlook and their vision for the businesses are what we’ll betting on here and we’re very excited that they are here to present for you.
So with that, let me turn the discussion to the first agenda item and I call on our Chief Financial Officer, Steve to take you through the financial section of the deck. I look forward to wrapping up with you at the end of the session after lunch. Thank you very much.Steve Tremblay Good morning. I want to extend my welcome as I welcome all of you to Kraton’s first investor day. Were certainly very excited at the level of interest you all shown in our company since going public here at the end of 2009. The team that Kevin just introduce for you is going to take you through a number of exciting initiatives we been working on for some time on. Those of you that have followed the company for some time are familiar with some of these initiatives. Others will be will be new to almost everybody here in attendance. Read the rest of this transcript for free on seekingalpha.com