Cabot Presents At Jefferies Group Inc. Global Industrial And Aerospace & Defense Conference (Transcript)

Cabot Corporation (CBT)

Jefferies Group Inc. Global Industrial and Aerospace & Defense Conference

August 9, 2012


Patrick Prevost - Chief Executive Officer




Good afternoon. I’m Lucy Watson. I’m with the Chemicals Equity Research Group for Jefferies and it’s my pleasure to introduce Patrick Prevost, CEO of Cabot.

Patrick Prevost

Thank you Lucy and good afternoon. I’ve got about 24 minutes here to walk you through the latest developments of Cabot and looking forward to do that. There will be a general outline of the company and a few key messages. Then I’m going to speak about the Norit acquisition, then we will spend a little time on our key strengths, global footprint, as well as the macro trends that are affecting our business, and then I will close with a review of our strategic levers and how we are doing against those leavers.

So before I get going with the main body of the presentation, I just wanted to remind you that our conversation will include forward-looking statements which effects the risks and uncertainties and Cabot’s actually results may different materially from those expressed in the forward-looking statements and you can find a list of those factors in our From 10-K.

So having gotten that out of the way, I’m sure you don’t want me to read that do you? Let me start with a brief review of our portfolio. We are currently organizing four segments, starting from the left you have the core segments, which is the business within which we produce and sell the rubber blacks that is used in the tires and the other industrial rubber applications. The main areas of focus here are process technology, relative cost position, value pricing and of course also industry structure and competitive environment.

Moving to the, right, the next segment is our performance segment. This is a segment where we have had our specialty carbons, our fumed silica and our master batch compound business. This is a business that sells to a variety of business, amongst which the adhesives industry, the sealants, coatings, plastics, toners and polishing slurries industries.

This is a business segment where applications development is key, new product introductions, value and use understanding, as well as the need for technology driven strong, long-term customer relationship approach.

Moving to the right, specialty fluids segment. Here we are in a very niche application of the drilling and completion fluids industry. This is going in oil and gas as well as applications. We have a very unique – actually we are the sole producer of cesium formate and we serviced our customers, we ramped our products to them and the application is very high end, high pressure, high temperature drilling situations.

Last but not the least, on new business segment is a technology driven segment with a variety of businesses that tend to be in high growth industries and application and here we are looking for profitable growth through the commercialization of new technologies.

Quickly, our vision and our strategy where we are about delivering growth through leadership and performance materials and we have four strategic leavers. First one is about margin improvement where we are looking at yield, value pricing, portfolio optimization, as well as energy efficiency. We are looking at capacity expansion as a way to create value, with special focus on emerging markets, higher GDP type growth geographies.

Now moving down to new products, we are a technology base company. We are about innovation, applications development, working closely with customers to develop new products and then finally we see value also in portfolio management and we are looking at projects that fit with our core competencies and tend to have leading technologies and also stronger market positions.

A little bit of history here. I said that we are about growth in earnings. In the ’06, ’08 period we were operating in an EPS level of approximately $1.50 per share and our ROIC was below our weight of average cost of capital. We have been focusing our strategy on leveraging the portfolio, restructuring assets and building a performance culture and as you can see, we’ve been successful. We’ve increased our performance significantly in the last few years.

We’ve been on the transformational path and journey and we’ve moved the needle with regard to our performance and are now on our next stage of target setting and have committed to delivering between $4.90 and $5 per share in 2014. This is on an adjusted EPS basis.

Let me now move to the Norit acquisition. This is an acquisition that has just been completed. We closed on the acquisition on July 31, so we are in the process of integration. We’ve been very fortunate to add a very high growth, higher margin business to our portfolio. Norit is the global leader in activated carbon. Activated carbons are used for purification of water, air, food and beverages, pharmaceuticals. It also gets used in catalyst type applications.

We see the addition of Norit continue to support the transformation of Cabot into a higher margin, less cyclical, specialty chemicals company and we saw the possibility of adding a business that had quite some similarities with our existing company, similarities around technology. The process of manufacturing activated carbon has some strong similarities. We used somewhat similar engineering and processes to achieve performance in carbon black as we do in activated carbon and we see the possibilities of leveraging those synergies between the two companies.

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