Second Quarter 2021 Highlights
- Net sales from continuing operations of $852 million, an increase of 59% compared with $535 million in the prior year period
- Net income of $38 million
- Segment EBITDA from continuing operations of $160 million compared to $56 million in the prior year period. Both periods reflect the treatment of the recently completed divestiture as discontinued operations.
- Following completion of the sale of its Phenolic Specialty Resin, Hexamine and European-based Forest Products Resins businesses, Hexion used $150 million of the net proceeds to pay down the aggregate principal of the EUR-denominated tranche Senior Secured Term Loan.
“Our strong second quarter 2021 results position us well to aggressively pursue our strategic actions that are focused on creating shareholder value, which includes a proposed public offering of Hexion Holdings Corporation’s common stock later this year, in addition to the consideration of alternatives identified through the Company’s ongoing strategic review,” said Craig Rogerson, Chairman, President and Chief Executive Officer. “We were pleased to drive strong second quarter 2021 results as our Segment EBITDA increased by $104 million, or 186 percent, in the second quarter of 2021 versus prior year. While the impact of COVID-19 in the prior year period clearly impacted the year-over-year comparisons, Segment EBITDA also increased sequentially by $46 million, or 40 percent when compared to the first quarter of 2021 driven by sharply increased volumes, pricing actions to offset raw material inflation and strong secular demand across our diversified end markets. We continue to benefit from a significant percentage of customer contracts that allow for the contractual pass through of raw material costs. Within our Adhesives segment, we continued to capitalize on the strength in residential home building, while within our Coatings and Composites segment we saw the positive impact of steady pricing actions in our specialty and base epoxy businesses. Overall, this resulted in Segment EBITDA margins approaching 19 percent compared to approximately 11 percent in the prior year.”
“Supported by a strong balance sheet, debt reduction remains a strategic priority. For example, we used a portion of the proceeds from the sale of our phenolic resins and European forest products businesses to repay $150 million of the EUR-denominated Senior Secured Term Loan in early May. Reflecting a strong second quarter, our liquidity totaled $646 million at quarter end. Due to our improved earnings and debt reduction, our net debt to Pro Forma EBITDA leverage ratio was 3.0 times as of the last twelve months ended June 30, 2021.”
“We continue to strategically invest in our Adhesives segment through our site expansion in Portland, Oregon to support our ArmorBuilt fire resistant wrap. This new product greatly improves fire protection when applied to a substrate and helps protect critical infrastructure for electric utilities. Our new Brimbank, Australia facility is expected to come online in mid-2022 to provide fire resistant cladding materials for new commercial and residential buildings. Both investments are intended to meet our customers’ growing demand for solutions that provide more sustainable product attributes and support the greater utilization of wood to support climate change strategies.”
“Looking ahead, we expect strong growth in earnings in the third quarter of 2021 versus the prior year as we are seeing broad-based strength throughout the portfolio, and while there is uncertainty in the fourth quarter due to potential customer manufacturing turnarounds and seasonality, we expect a strong fourth quarter of 2021 compared to the prior year. We remain focused on delivering earnings growth and making significant progress toward our potential value-creation strategies.”
Hexion Completes Strategic Divestiture
On April 30, 2021, the Company completed the sale of its Phenolic Specialty Resin (PSR), Hexamine and European-based Forest Products Resins businesses (the “Held for Sale Business”) for approximately $425 million to Black Diamond and Investindustrial. The Company received gross cash consideration for the Held for Sale Business in the amount of $304 million. In addition, the Buyer assumed approximately $31 million of certain liabilities, net of preliminary working capital and other closing adjustments as part of the Purchase Agreement. A subsequent post-closing adjustment to the purchase price of $2 million was made in accordance with the Purchase Agreement. In May 2021, the Company used $150 million of the net proceeds to pay down the aggregate principal of the EUR-denominated tranche Senior Secured Term Loan.
Hexion Exploring Value Creation Strategic Alternatives
As previously announced on August 2, 2021, Hexion Holdings Corporation, the indirect parent of Hexion Inc., announced it announced it has submitted a draft Form S-1 registration statement on a confidential basis to the U.S. Securities and Exchange Commission for a proposed public offering of its common stock later this year. The planned registered public offering is part of Hexion’s and its Board of Directors’ ongoing and continuous strategic review and evaluation of opportunities to enhance shareholder value.
Hexion and its Board of Directors believe that the Company’s strong financial performance, favorable end-market exposure, and continued transformation makes an IPO or other value-creating strategic opportunities compelling to consider. The IPO is targeted for completion in the fourth quarter of 2021, but remains subject to SEC review, European works councils review, and market conditions. In addition, the Company’s ongoing comprehensive strategic review of the business and each of its segments may impact timing through the consideration of these other alternatives.
This press release is not an offer to sell securities.
Second Quarter 2021 Results
For the six months ended June 30, 2021, we reported the results of the Held for Sale Business operations as a “Loss from discontinued operations, net of taxes” on the unaudited Condensed Consolidated Statements of Operations. Amounts for prior periods have similarly been retrospectively reclassified for all periods presented. As of December 31, 2020, we reclassified the assets and liabilities of our Held for Sale Business as held for sale on the unaudited Condensed Balance Sheets.
Total net sales for the quarter ended June 30, 2021 were $852 million, an increase of 59% compared with $535 million in the prior year period. Pricing positively impacted sales by $182 million due primarily to improved market conditions in our base epoxy resins and specialty epoxy resins businesses, raw material price increases contractually passed through to customers across many businesses, and favorable product mix. Volumes positively impacted net sales by $95 million, primarily due to strong demand across key end-markets in our North and Latin American resins businesses and our base epoxy business, which offset volume declines late in the quarter from softer wind energy demand in China as customers adjusted their inventory due to rising raw material costs. Foreign currency translation positively impacted net sales by $40 million due to the strengthening of various foreign currencies against the U.S. dollar in the second quarter of 2021 compared to the second quarter of 2020.
Net income for the three months ended June 30, 2021 was $38 million compared to a net loss of $42 million in the prior year period. Total Segment EBITDA from continuing operations for the quarter ended June 30, 2021 was $160 million, an increase of $104 million compared with the prior year period, or 186 percent, reflecting strong gains across both the Adhesives and Coatings and Composites segments.
Segment Results
Following are net sales and Segment EBITDA by reportable segment for Hexion’s continuing operations for the three and six months ended June 30, 2021 and 2020:
Liquidity and Capital Resources
As of June 30, 2021, total debt was approximately $1.6 billion and consisted primarily of the Company’s approximately $1.2 billion Senior Secured Term Loans due 2026 and $450 million Senior Notes due 2027. At June 30, 2021, the Company had $646 million in liquidity, including $286 million of unrestricted cash and cash equivalents. Hexion has no upcoming maturities on its term loan or notes until 2026. Hexion expects to have adequate liquidity to fund its ongoing operations for the next twelve months from cash on its balance sheet, cash flows provided by operating activities and amounts available for borrowings under its credit facilities.
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