The demand for value-added premium products has witnessed an increase during the pandemic and are being prioritized by the customers, says William T. McLain, Senior Vice President and Chief Financial Officer, Eastman Chemical, a leading global advanced materials and specialty additives company. 

Speaking at the recent Deutsche Bank’s Global Basic Materials Conference, McLain explained how Eastman works with customers to deliver innovative products and solutions while maintaining a commitment to safety and sustainability. “Our market-driven approaches take advantage of world-class technology platforms and leading positions in attractive end-markets such as transportation, building and construction, and consumables. We have served customers in more than 100 countries and had 2020 revenues of approximately US $8.5 billion.” 

In conversation with David Begleiter, Research Analyst, Deutsche Bank, McLain shared his insights on the company’s financial performance: “It has been a decade of good earnings growth and there has been a continuation of 15% to 20% margins. While we have seen reasonable returns, our strong focus is on accelerating the margin value. In the first quarter of 2021, cash from operating activities was US $216 million. With our strong first-quarter results, we now expect free cash flow to approach US $1.1 to US $1.2 billion in 2021. We believe that the second quarter is going to be dynamic and growth depends on matching the predicted numbers of orders closing.” 

Commenting on the improvements in the cash flow, McLain added, “Ultimately, it is two-fold. One is delivering upon the growth model, including how we get back to normal and have an 8 to 12% model that we had in 2018, improving our EBITDA and operating cash flow. Second are the opportunities through multi-pronged approaches for working capital. We have multi-year plans and digital adjustments to achieve these. There are transformation programs we will continue to operate as well as digital investments.” 

Talking about pricing trends, McLain said, “The supply demand continues to be robust in the automobile sector. There are still inflationary pressures and we have seen high increases in advanced materials. We will be able to set our margins right in the second half. I would say the pace of price increase in raw material will eventually come down. We have been maintaining good inventories through the second quarter and as we move into the third quarter, we can see robust demand. Any inventory build in the second half will continue to help us serve the customers. At the end of the day, a demand driven environment helps us to push value added products and maximize our output.” 

Sharing insights on the market demand, McLain said, “While Aviation will take time, our exposure to transportation, supply chain is back into action. We believe Amines and Additives & Functional Products (AFP) will see good demand. As advanced materials consist of two-thirds of the business, we made transition over the period of time and through trade war to what we are today. It is a pretty dynamic environment and we now have the option to accelerate that. We believe that the circular investments will accelerate the growth rate and our projects have been highly value creating. We have plans for capacity enhancement for ‘Tritan’ made through our Advanced Circular Recycling Technologies. Our recycled plastic business is doing fine and we will continue to accelerate the film business through new applications and solutions for our customers.” 

Talking about the company’s innovation model, McLain said, “We have a strong technology base. Our circular initiatives are always in partnerships with customers. We are generating the technologies and products by understanding their requirements. The market plans are based on customer driven initiatives. There is no debt we are paying in 2022. We have built strategic ability on cash flow to allocate 700 million dollars to shares and other opportunities. Retaining the footprint, optimizing business as well as continuing to innovate and do automation remain our priorities. We are looking at investing as soon as the pandemic is over and we will continue to act on the key projects.” 

On the company’s leadership role in the circular economy, McLain mentioned, “Our technology focused and innovation driven model makes us different. The commercial products launched by us have a considerable renewable footprint. It is very exciting to see that our biological cellulosic products make both circular and environmental connections. We believe that sustainable solutions to plastic waste are in reach and we are determined to play our part in the world’s collective response. Our scientific and technical resources can be a circular economy multiplier for plastics and textiles. We have developed, operated and proven technologies that unlock value in plastics and textiles which cannot be mechanically recycled or are difficult to recycle.” 

On the economic viability of recycled products, McLain said, “This is the right time for renewables and few of such products demand premium prices. Due to growing awareness among customers, these products have good financial returns as compared to ten years ago. That's the reason we are confident about the growth in our model. We are committed to working together across the value chain to create real and actionable solutions towards a true circular economy. We are way ahead of market demand and will have a world class plastic-to-plastic molecular recycling plant ready at an investment of US $250 million in 18-24 months.”