Ingevity Corporation (NGVT) Earnings Call Transcript & Summary

Good afternoon, and welcome to Ingevity's Investor Day 2023. My name is John Nypaver, and together with Meredith Versen, we are the Investor Relations team at the company. It's great to see everyone here. Thank you for joining, and thank you for joining those of you online. Before we begin, I got a couple of housekeeping items. First, today, management will be discussing non-GAAP financial measures. And just a reminder that those measures are -- sorry. So management will be discussing non-GAAP financial measures today, and those measures are intended to supplement, not substitute for comparable GAAP measures. We will have a reconciliation of these non-GAAP measures in our appendix for the slide deck as -- and you can also find them in our 10-K. Management will also be making forward-looking statements, and this is just a reminder that those statements are projections, and actual results may differ. We have a great agenda for you today. John Fortson, our CEO, will be up here in a moment to provide opening comments. Then he'll turn it over to our 3 business leads, they're all here. We've got Rich White to talk about Performance Chemicals; Ed Woodcock on Performance Materials; and all the way from the U.K., we've got Steve Hulme to discuss our newest segment, Advanced Polymer Technologies. After Steve, Mary Hall, our CFO, will be out to give a financial overview; and then she'll turn it over to John for closing comments. Once John is done, we'll have a quick break and then bring everybody back in for a Q&A with the whole panel. All right. Just a reminder, we have booth set up in the back. If you haven't had a chance to visit them yet, they will be open after the Q&A. It's a great way to learn more about our products and end markets, so I definitely encourage you all to do that once we're done here. And with that, we're going to start with a video. And this video will give you a taste of who we are at Ingevity. Thank you. [Presentation]

Well, good afternoon, everybody. Thanks for coming. I see a lot of faces of people that I -- we recognize and a lot of new faces out there. So -- we look forward to spending the next couple of hours with you. We've got a lot of exciting stuff to talk about as Ingevity moves forward over the next couple of years. Before I get going though, I'm going to address kind of the elephant in the room, right, which is what happened to the stock price over the last couple of weeks. I wish I had an answer. Truth of the matter is, everybody has been calling in, many of you, some of you in the room over the last couple of weeks saying, hey, what's going on? Am I missing something that the rest of the market knows? And obviously, we've talked a lot about crude tall oil and what's going on there. Those of you who know us know that we are very transparent, right? We believe very strongly in telling it like it is. And hopefully, over the course of the next couple of hours, you'll understand exactly the markets that we operate in, what's changing in these dynamic markets and what the opportunities are for Ingevity. And hopefully, when this is done, you'll be as excited as we are about how we purify, protect and enhance the world and grow this business going forward. I love that video because it really talks about where Ingevity is. But I love this slide too because we're a B2B, right, business-to-business. You're not going to find a name Ingevity in a grocery store or a pharmacy store. But -- and we're known for our performance material and being in the internal combustion engine. But the truth of the matter is, Ingevity's products are everywhere, right? We are everywhere. We're in your roads. We're in the Amazon boxes that get delivered to your front doorstep. We're increasingly in the knives and forks that you use to eat. Believe it or not, we're in the soda dispensers when you go to a fast food restaurant and punch up your Diet Coke. We're even in your kids' skateboards. We are everywhere. And we do all that sustainably. We kind of joke internally that we're the sustainable company that everybody was waiting 100 years for people to actually appreciate and realize. We have top quartile, top industry returns, profitability. We do that while maintaining or making sure that over 77% of our material comes from sustainable sources. If you back out Advanced Polymer Technology, Steve Hulme doesn't like it when I say that, the number is actually over 90%. And we have a solution for that too in the future, which we're working on. But you're not going to find a lot of companies that have that type of sustainable sourcing, and because of that, we're increasingly being recognized for that. And this year, we were awarded the EcoVadis Gold rating, which puts us in the top 3% of our peers from a sustainability perspective. We are rapidly approaching $2 billion of revenue and $500 million of EBITDA. We are more global as a company than we've ever been. We're also derivatizing and providing more specialty products than we ever have as a company. And we now report in 3 segments. Those of you who know us know our Performance Materials business, that's our activated carbon business. We also have our Performance Chemicals business, which is our legacy pine chemical business. And now we're actually going to separate out Advanced Polymer Technologies. We are market leaders in all of these businesses. When you look across the product portfolio, we are #1 or #2 in every market position that we actually compete in, and we're excited about the growth opportunities that you're going to see in each of these segments going forward. We also have a lot to be proud of. Those of you who've been around us know that we've actually doubled our revenue and our EBITDA over the last 6 years. That's an 11% revenue CAGR, 14% EBITDA CAGR. You're not going to find a lot of companies out there, particularly in our space, who've actually produced those types of numbers over this period. And we've done that while maintaining top quartile margins that are north of the mid-20%. We've completed 3 significant acquisitions during this time period, which allowed us to diversify the breadth of our offerings. And on top of that, we've also bought back 6 million shares, which translates to about 14% of our shares outstanding from the time of the spin. So we are very focused on delivering for shareholders. We have a lot of exciting opportunities going forward, which you're going to hear about today. Those of you who know us know that truthfully, we are in transition, right? There are a number of changes in our markets that we have been watching and preparing for the last several years, but they're here. And we are actively moving our portfolio today to respond to those changes and also to create opportunities for us. Today, we're going to show you the strategy behind that, but also how we are executing to that, right? When you were out there earlier today, hopefully, you had a chance to see the different AFAs. Stacy Jordahl and some of our colleagues were back there. We're making this stuff today. We are making this stuff today. We've been watching, observing, preparing, and we are in this transition. We will emerge a stronger and better company, and we will emerge a company that is more in market and customer-focused, really doubling down on that, versus our history of being product focused. We will accelerate after that. We have a lot of regulatory tailwinds that are behind us in each of our 3 businesses, whether it's continuing more strict auto emissions and a transition to electric vehicles, there's a lot of carbon in electric vehicles, whether it's a move away into the biofuel market and a broadening of plant-based or oleo-based chemistries moving forward and taking prominence as the petrochemical industry has to transition, we have opportunities that we will accelerate. And then finally, we will move into what we call sort of the next generation of Ingevity where we will exploit those markets. We will not only take share, but we will also continue to grow in many of these new markets. So we're excited. Each of our 3 businesses has a unique set of opportunities and we have a unique set of capabilities. Most people are familiar with our legacy pine chemical business. The reality is we have a 3-plant network which are a set of distillation columns. Those distillation columns can be used to distill and separate and make other chemistries besides crude tall oil. Almost any plant-based oil can be run through those facilities with very minimal modification, and it's pretty exciting what we're doing with that. We have an 80-year history of doing this. We have very flexible fixed assets, and we have an opportunity in markets to get above GDP and above-market growth while maintaining margins that we've historically had in this business. Our activated carbon business, when we were first spun out, got a lot of attention. It still does. We still have room to run despite the electrification in our legacy old technologies. But on top of that, there's a lot of carbon that are used in batteries, and we are working now to look at how we will assist and facilitate that transition, and you'll hear more about that from Ed today. There are besides carbon, other products that are used in that value chain where if you want to make it from a bio-based source, the process is very, very similar to what we do today. And we have the opportunity to use our assets and our know-how to participate in that, and we will. And then finally, Advanced Polymer Technologies. This was an acquisition, but it's an exciting and incredible opportunity for us. It has a great litany of what I call old technology or old generation applications and coatings. But going forward, it's biodegradability, it will play a major role as the world moves away from historical petroleum-based polymers. Tremendous opportunities for well above-average growth while delivering margins that are in the mid- to high 20s. All right. So I'm going to talk a lot here, so bear with me, about what is going on in the crude tall oil market because I do think that this has been weighing on people's minds over the last couple of months. So I would call your attention to the slide on the right first, okay? And we don't normally talk a lot about crude tall oil and its pricing because it's pretty proprietary, but that hard black line is crude tall oil, all right? And I will show -- and that is -- it's pricing relative to other oleo oils that are more commonly traded that you can find in a market, right? What's really happened is there's a regulation in Europe called RED II, all right? And then if you want to go read it online, you can. It makes for great late-night reading, but I would encourage you to go to Annex 9A and 9B, which are in the back. Because in those, it lays out all of the different raw materials that can be used in Europe to synthetically create a diesel, okay? Diesel is here to stay. Diesel is what's needed for heavy vehicle, trucks. Biofuels are what's needed for sustainable aviation fuel, right? So this technology -- and it's also coming to the United States. So by 2024, it's estimated that about 2.5 billion gallons of biodiesel will be produced online in North America, right? But what's happening in Europe is they've laid out this basket of different plant-based oils, but then they ruled out certain things because they don't want to drive inflation or there's a political reason to it, right? So anything that's tied to the food chain, olive oil, rapeseed oil, canola oil, is not in the basket. It can't be used right now, right? Palm oil, which is actually the largest source of oils out there, and it's hard to believe that at some point down the road, they're going to have to open this up. But because of the child labor issues in Malaysia and Indonesia, palm oil has been excluded, right? So right now, that puts crude tall oil and used cooking oil basically as the 2 main raw materials that are used for biodiesel in Europe, okay? And it's not even crude tall oil, it's actually the tall oil fatty acid that they want to use, okay? We'll talk about this later, but that presents tremendous opportunities for us, not only to -- as an alternate source of demand for our TOFA, but we're also one of the few companies out there that knows what to do with the other 60% of crude tall oil that is not TOFA, right? We have outlets for that. So -- but that led to a speculative bubble that occurred in the market towards the latter part of 2022 and into the first part of 2023, okay? And that speculation occurred even though other oleo-based oils or other plant oils prices were actually coming down because of global economic concerns, right? So the price of most commodities rolled over, right? There's about -- and you'll notice this, about a 3-month lag typically between what happens in the broader oleo markets and what ends up happening with crude tall oil. Crude tall oil is not a very transparent market. It's pretty opaque, as many of you guys know, but that pricing is pretty much what we've seen. Now what you'll also notice is that you can see the price starting to turn and come back down, right? And the reason why that is, is because biodiesel because of the economic issues and what's happening over in Europe, the pricing is coming down, and therefore, the demand for crude tall oil is coming down to reflect that, right? Over time, and by that, I mean, sort of the next 5 to 7 years, many of these oils are all going to converge to biodiesel pricing. That's what's going to happen, right? But that's the situation we're in today. It spiked up on us pretty dramatically. It has begun to turn. We do think that we will see some relief of the pressure but it's going to remain elevated, okay? But it also helps explain why we're interested in looking at other feedstocks to create similar products because if I can buy my feedstocks at lower prices, and those just happen to be some that we're using, right, soybean, palm and rapeseed, we will have a cost advantage from where we sit today, right? The point on the left, which I think is important for people to understand is there's about 2 million tons of crude tall oil produced every year globally, okay? About 1 million tons in North America and about 1 million tons in Europe. About 200,000 of that 1 million tons in Europe right now is embargoed in Russia, right? So it's trapped in Russia, can't be sold, okay? That's also putting pressure on the U.S. CTO market because European buyers that are used to buying from Russia have to go elsewhere, okay? Don't know how long that's going to last, but that is a part of the market dynamic that's showing up on the right side of the page, okay? But that's a pretty static market. Most people know the world is not building more paper mills, right? In fact, they're shutting them. Evidence one is one in Charleston, South Carolina, the paper mill that we sit next to, they announced its closure last week. I also want to put this to bed. It's not going to impact our operations, okay? We only buy about 10,000 tons of CTO from that plant, even though we buy 275,000 tons a year, okay? WestRock will replace that from -- with CTO from other mills. It was a sick mill for a long period of time. Is it a pain for our people? Stacy Jordahl is back here somewhere. We're having to figure out how to like cut over the power generation, we're trying to figure out how to get the electricity and stuff. But yes, but it's just -- these are one-off rewiring costs, but they're not going to impact our ability to perform our operations. And in fact, we may end up saving money on some of these things when the dust settles because as I mentioned, that was not a very efficient WestRock plant, right? But to go back to the main point, the world is not building a lot more paper mills, so this is a relatively static amount of CTO that's going to be out there in the marketplace. But what's happening is because of the biodiesel market, there's incremental refining capacity coming online in the market, okay? In fact, there are 3 facilities being built or potentially being built today, right? Now most of you guys know, the last thing you need in a static supply market is more demand, right? That's also explaining part of the challenge. But it's also why entering into the supply agreements that we have with WestRock and Georgia-Pacific, which we just announced their re-up a few months ago, is so important because we are money good for 275,000 tons of CTO through the end of the decade into the next decade, okay? That's the nature. Now we will pay more for that crude tall oil, right? It will move with the market, right? But we know we have it. And that's important because with all this capacity coming on, there's going to be a game of musical chairs and not everyone is going to have a seat at the table. But we will have a seat at that table. And we will use that to our advantage, both in our legacy markets and in the new markets because we know that we have over 10% of the capacity that will be provided, right? So we will survive, and we will move forward, and our intention is to exploit those opportunities. But it's pretty important to understand that, and I think there's a lot of confusion and noise out there, we're not short CTO, right? That's not going to be an issue, right? We are paying more for it. We have to charge more for our -- to our customers. I mean, we have a strategy to manage that, and this is it. So if you look at today, and again, this may be more information than you guys care. But historically, we have run a 3-plant network at around 365,000 tons of utilization, okay? That's what we like. Our nameplate is higher than that, but that's kind of -- if you go back over the last 10 or 15 years, that's what we've liked. The reality is, though, over the last probably 5 years, we've been running that at about 275,000 to 300,000, okay? So we have not been running at max capacity. And the reason for that is because if you know us, you know that we're constantly asking ourselves if we buy that marginal ton of CTO, can we make the profit that we want on it, right? So we're optimizing this continuous flow process. And lately, we've been landing in the kind of 300,000 range, right? Well, what that really means is that of our 2 plants or of our 3 plants, we've been running at 2/3 capacity utilization, right? So even though you don't see it and it doesn't show up necessarily, the truth of the matter is we've been running these 3 plants at like 66% utilization. Well, that's one plant's worth of empty capacity, right, that we can use, right? So what we're doing is we're taking those 275,000 tons, and we're shifting them to 2 of our plants and then we're reconfiguring even as we speak, Crossett in to run alternate fatty acids. But we want to service that same legacy customer base of TOFA and TOR customers, right? We want to -- whether you can think of it as a $700 million business, however you want, or 275,000 tons of volume, but their prices just went up, right? The cost of TOFA and TOR just went up for them, right? Well, some of our customers will be able to bear that. Some of our adhesives' customers, some of our asphalt -- or some of our asphalt customers. But there's also going to be some that cannot afford it, right? And this has happened before. The best analogy for those of you who've been around reminds me of the kind of '19 period with what happened with tall oil rosin. If you guys remember, gum rosin pricing fell, we had a turpentine dislocation, which really dropped the pricing of rosin and people substituted out of ours, right? Well again, up until this point, we've had to send people down the road like that. We've had no alternative to offer them. But today, with our AFAs, we're going to be able to go to those customers, and we're already doing this in the oilfield markets, we're increasingly doing it in the asphalt markets, we're doing it in other markets. But we're going to them and saying, look, here's an alternate that's non TOFA-based that we provide. So we want to cover that same set of customers, that same volume but using a broader set of offerings. What's interesting about AFA though, and hopefully, you can see it when you're outside, is that actually -- and this is kind of sacrosanct inside our company sometimes, but canola fatty acid is in many ways better than a tall oil fatty acid, right? It doesn't have the same amount of sulfur. It's clear. It doesn't have the same odor. It can be used in a much broader array of applications because of that. You can actually eat TOFA, but I doubt you'll want to because it tastes like tree, right? But canola is in food, right? It's in animal feed. It's also in personal care. Palm is in personal care. So we have an opportunity to enter new markets that we're not [ doing ] today, incremental volume from where we are today. And then finally, if you think about that, right, that means we're kind of left over with excess CTO-based products, right, because we don't -- we're not selling as much as we used to. We're going to use that to enter the biofuels market. We're already selling into the biofuels market. Rich is going to talk to you about this today, but that's a huge opportunity for us, and we plan to be there for that, right? So when all is said and done, this actually represents just by modestly spending $20 million of capital in retooling one plant. We're actually going to double the volumetric output of this segment, right? And Rich will explain to you how that works. But we're going to go from 275,000. We're going to double that, right, to potentially 550,000, right? Performance Materials. I will just state this [ unequivocably ]. We will be growing this business through the rest of the decade. I'll just say that one more time. We will be growing this business through the rest of the decade. And the reason why is they're in the bottom right, okay? When you have changing regulations in Europe and in China and you double the content that's on our -- that's on a vehicle, it more than offsets the EV penetration, okay? And I think the nuance that sometimes is lost on people, whether it's looking at the U.S. market or China or other markets is that hybrids still use our technology, right? So just when you hear a term electric, you have to think all electric to exclude Ingevity, right? We could very well find ourselves in a position in the latter part of this decade where, to some extent, we're double dipping on a vehicle, meaning that we're going to have some of our carbon in the electric vehicle battery and we're going to have some of our carbon in the legacy technology to support the old internal combustion engine, right? But Ed will take you through all this math. Regardless of the assumptions that you make, whether you're very aggressive or you're very conservative or you believe in the EV, you don't believe in the EV, we're going to spell it all out there for you, but you'll see that we'll keep growing this business. And then finally, APT. A lot of exciting opportunities here, and hopefully, you had a chance to go out there and look at some of the displays. We will play a big role in bioplastics, right? We will play a big role in single-use plastics because our stuff is biodegradable. And effectively, what it does, and Steve and I were talking about before this presentation, PLA is very brittle, right? And what our material does is it allows that material to stay flexible and stay together, right? So it's a plasticizer but it biodegrades, right? So we will have a big role in that. We also will have a big role in automotive. Actually, automotive has been one of Steve's biggest growth drivers in the last couple of years. Not just with batteries, but with other technologies that are -- that will survive or be a part of the next gen. And then finally, footwear and apparel. We're actually really excited about this. I mean, people who know this business know that we've been in shoe counters for a long time, right? Not exactly the fanciest or sexiest application works, but one of the largest sources of landfill waste is actually old clothes, right? Because once it kind of makes 2 or 3 turns through the goodwill or what have you, they go to the landfill, right? And we're actually getting involved now in working with apparel manufacturers to make those clothes ultimately biodegradable, and that shirt you saw out there is an example of one, right? Huge market. And then finally, why invest in Ingevity? Listen, we are growth-oriented. You're going to see on the next page, our plan is to double our revenue and EBITDA again in 7 years. And you might say to yourself, given all the tailwinds and all the story here, how is that going to be? But I challenge you today, as you listen to everybody, to add up these different opportunities and the math is what the math is, okay? We talked about a doubling of volumetric capacity in Rich's Performance Chemicals. You'll see the math in the Performance Materials. You'll see the opportunities. When you add all that up, we're going to $1 billion in EBITDA in 2029. We have a history of doing this. We have a history, an 80-year history of being an innovation leader. We know how to do this, and we intend to do it while maintaining our margin profile, which we consider in the mid- to high 20s, best-in-class. That's it mathematically. As you go through today, please fill in those blocks. You'll see them as we go through the presentation. And lastly, we have the team to do it. Ed and I are the last 2 of the original [indiscernible] doesn't like this, but Ed's got more time in Ingevity than me. Dinosaurs were still in the Charleston area when he first came to the company. But we have assembled a world-class team from a breadth of different industries, some from the specialty chemical industry, some from other manufacturing industries, but I would stack the quality and caliber of this management team against any's for a company of our size, and we've been working hard. COVID, in some regards, was a hidden blessing for us because we had time to go away and really work on these things, and we're excited about where this company is going. And with that, I'm going to turn it over to Rich White.

Good afternoon, everyone, and thank you for coming today. Thank you for your interest in Ingevity. We're really excited to talk to you today about the Performance Chemicals business, and we have a lot to talk about. So let's get right to it. If you think about the Performance Chemicals business, since the spin, we've been able to see a 6% and 13% CAGR, respectively, on revenue and EBITDA. The business is broken down into 2 segments: the Industrial Chemicals business and the Pavement Technologies business. Industrial Specialties business is a GDP business, somewhat cyclical, with products going into adhesives, oilfield, lubricant and agricultural chemicals. And today, it makes it about 70% of Performance Chemicals. Pavement Technologies is a more growth centered, year-over-year, high-margin business that is providing products to asphalt and road markings. The double-digit EBITDA that you see on the upper right-hand side of this chart was a direct result of us moving from very -- into very specialized markets, right? So we take products and we derivatize them, as you heard John say. But we don't only take products, we take a base product and then make it specialized for all the markets that we're going to talk about here today. We saw these derivatized products grow greater than 10% since the spin, mostly through the work of innovation. We have technical centers not only in Charleston but in Tulsa, Oklahoma; Lille, France; Mumbai, India and Shanghai, which lends itself to the last chart you see -- the last pie that you see on this chart, which is global expansion. 70% or greater than 70% of our business today is here in North America, but we have specific initiatives in each one of our businesses to drive growth across the whole portfolio. We like in this business, as you think through and look through the slides that we're going to go through today and hear what I'm going to say, we have like in this business to a historical operationally product-driven business, and we're moving to a more market-driven, customer-focused business. In other words, this is what I make, will you buy it? As opposed to you saying, this is what I need, can you make it? You all know of Ingevity's commitment to purify, protect and enhance the world. If green is your thing, it does not get any greener than Performance Chemicals. All of our raw materials, CTO, soy, canola are from renewable feedstocks. All of our products are greater than 95% bio-based. The actual number is even higher than that. If you look at our pavement coatings, our cold recycling -- in the cold recycling process, our products help reduce GHG by 90%. In our agricultural products, our products help reduce water runoff, which leads to cleaner waterways. In other words, green is definitely our thing. John spent a lot of time talking about our operational network, and we're going to spend a fair amount of time talking about it right now. Historically, we have taken CTO, right, and fractionated into TOR -- CTO, crude tall oil, I'm going to use a lot of acronyms today. Crude tall oil; TOR, tall oil rosin; TOFA, tall oil fatty acid; AFA, alternative fatty acids, so just to get that out of the way real quick. But we have historically, for the last 84 years, fractionated crude tall oil to go into all the markets you see here. And to a lesser extent, lignin, which we use to make all of our dispersant products going into [ ag, dyes ] and batteries. What we are moving to is being able to do everything we do today or have been doing in the crude space, supplementing some of those same markets with alternative fatty acids and allowing us to go into new markets. To give you a pictorial of what that's going to look like, today, you see us having a 3-plant network that produces CTO across the entire network. As John mentioned, our utilization rates haven't been as high as we would like, so we can take 2 sites, Charleston and DeRidder, and maximize the fractionation of CTO at those 2 sites while utilizing our Crossett site to produce the AFA products, soy, canola, palm, but it's not palm. It's palm fatty acid distillate. We're not processing palm. We're taking the distillate from the palm process and using that to go into various markets, primarily animal nutrition, which we'll talk about. So we'll take the legacy plus new, increase our overall capacity utilization, 2 plants on CTO increasing the utilization, ability to expand those 2 plants if we need to. So it's like, well, what if the CTO price comes down? What are you going to do? Are you going to like turn Crossett back? No, we're not. We can put -- we can use [ nominal ] capital and expand either DeRidder or Charleston, right, and then run Crossett fully on AFA. But how does -- what does that look like? So take a look at these 2 pictures right here. Today, we have a biorefinery system that is a very multicolumn type system through which we fractionate CTO. We need all those columns to fractionate the CTO. And when we do that, we're getting both tall oil fatty acid, tall oil rosin and some other products out. But if we have an imbalance. In other words, if the team is selling a lot of TOFA but the rosin market isn't so hot. That throws the plan out of balance because you have to have some place to put the rosin. So what we're saying is, hey, as we move over to this, our Crossett facility will be able to have a less dependent system where we can produce soy, we can run canola, we can run PFAD, we can get [indiscernible] of oleic and glycerin, and they're all independent of each other. So they're not so dependent on what we see today with just fractionating the crude tall oil. So we're really looking and excited about eliminating the imbalance at this one site and allow us to capitalize on the diversification and flexibility of running the Crossett facility, and we're really excited because it's all going to be complete by the fall. We shut down Crossett from running CTO as of April 1. And by the fall, we'll be up and running. We're running now, but it's not fully up and running and done, but we expect that to be finished by the fall. So we're very, very excited about that, and look forward to your questions as we get later on. So with that, I'd like to talk a little bit about Industrial Specialties and what's going on in that business. Certainly, since the spin, we've seen a revenue of approximately 6% CAGR, but yet volatile, right? We -- it has been volatile. But what have we done about it? We've shifted our focus into the higher margin, more stable markets that are more attractive to us, things like adhesives, agricultural chemicals, lubricants. That's what we're going to continue to do with this space. Global expansion is going to be a theme. It may sound redundant. It will sound redundant as I talk about it today because it is a thread that runs through entirety of the Performance Chemicals business. Right here in Industrial Specialties, one of the keys we're going to do is global expansion of the business going forward. We see growth in both our legacy and new markets within Performance Chemicals. You see here on the top end of this chart, the historical markets that we've been playing in, that we're very confident that we can grow above the total addressable market rates that you're seeing here because of the energy transition, increased production of oil and gas around the world, growing population needs for food and the focus on sustainability and ESG. But we really want to spend the time in the latter green below, Biofuels, Home & Personal Care, Animal Nutrition. As John stated, we've been in this biofuel space for some time now. All of our sites are ISCC certified, which you need to be able to provide products into the biofuel space. We have multiple products that are approved at EU, European biofuels producers. We have actively engaged. John, Mary and I were in Finland earlier this year, with all -- with senior executives at many of the biofuel companies in Europe and here in the U.S. Now, the economics within this space for our products today have yet to converge. John already mentioned the whole market. But if you think about the price of crude tall oil and brown grease, crude tall -- I mean, sorry, if you think about the price of used cooking oil and brown grease, those prices and the economics of those are much lower than what we need and what we want within our -- within the space we play in today. That's going to converge. There's not enough raw materials in the world to satisfy the needs of this biofuel space going forward. So we will be selling into this space. On the Home side and Personal Care and Animal Nutrition, that's all new areas for us, right? We're already playing in the animal feed space a bit. But these are new areas for us, but they complete the third pillar of the strategy for Industrial Specialties. And those pillars, to restate, are pretty straightforward. One pillar is an industrial pillar. That's what we have done and continue to be doing. As I showed you on the plant network slide, we're going to continue to go into the markets that we've been playing in. We'll do it with existing crude-based products as well as new alternative fatty acid products, pillar #1. Pillar #2 is the Biofuel space. We have our products approved there, we're testing AFA products, and guess what? We're able to spike it with a little bit of rosin because some of the folks want rosin, helps us get rid of some of the rosin, So that's a good thing also. That's the second pillar. The third pillar will be this Home, Personal Care and Animal Nutrition space, which will look for our products, primarily from the AFA side. Now that could be a long chain, that could be a short chain, that could be a mid-chain. That could be similar to TOFA products, that could be surfactant technology. Our team is actively engaged across all those technical centers with customers. Our team can tell you we've sent out hundreds of samples of our AFA products that are seeing really good traction today. So for the future within the Industrial Specialty segment, we expect the CTO products to grow at probably 5% to 8% CAGR over the time period. But through going into this new alternative fatty acid space, diversifying our product portfolio, optimizing our capacity utilization, we expect to see double-digit growth in this space, primarily led by these trends you see here. Oilfield, global expansion, adhesives, performance characteristics and sustainability, agricultural, sustainable products for good food development. AFA is going to ramp up nicely. AFA, we expect to be 1/3 of this business by the end of the decade, So we're really excited about this. Now the Industrial Specialties' other applications, we have them kind of bucketed it into industrial applications here, still be about GDP growth. We will continue to try to work to shift those products into more stable, higher-margin markets. And to be quite frank, we'll probably exit out of some of the markets because that's what it's going to take for us to be able to achieve the goals that we've laid out for Industrial Specialties. Just to talk a little bit about some of the segments, with Adhesives. You all know e-commerce is here to stay. It's here to stay by -- and we can say that by all the boxes that are arriving at each one of our houses, it's not going anywhere. But as the -- the packaging industry continues to grow, we're going to see that more and more recyclability of the cardboard that is being used. And because of that, we're going to need to have adhesives that provide additional stickiness, so to speak, and our adhesives will be able to do that. Road markings. Road markings can be done in a lot of different ways, right? They can be done from a paint standpoint. They can be done thermoplastic. They can be preformed, which is made and just laid on the road. We're excited about the technology that we have because the best technology for road marking in our estimation is thermoplastic. Thermoplastic because it enhances the retro reflectivity ability for a car to see the lane that is not historically seen by hydrocarbon or petrochemical-based products. So we're really excited about the Adhesive section and expect it to continue to grow. That business has actually doubled for us in the last 3 years, the Adhesive segment of this business. With regard to oilfield, I've mentioned, we expect to see globalization of these products. So down in Latin America, over in the Middle East, over in Asia, where primarily today, North America only represents 25% of the oil and gas industry. We've been partnering with our customers that have extensive network around the world to carefully select the technologies that they need to better enable themselves to work in this space. So improved consistency and scalability of the products help us to provide options in this area, and certainly, new applications driven by the AFA technology. Today, in 2023, this oilfield business, 15% of the revenue will be driven by AFA. Already today, 15% of this oilfield space revenue is being driven by alternative fatty acids. And we see that continuing to grow. Alternative fatty acids. It is and will be and has to be a game changer for us. So excited about this. This is not something we just happened on, so to speak, right? We knew that we wanted to diversify our offering to the marketplace. Diversifying our feedstock allows us to do that. Flexibility manufacturing is certainly key, right? Switching Crossett over to AFA, we'll be able to do that also. Multiple new products will come directly from us growing into this space, which will allow us to have more than 3x the products that we have today. As I mentioned to somebody out in the hall, one of the things that I want you to make sure you keep in mind about our ability in this space is that, yes, there are other players in this space. There's nothing new under the sun, if you didn't know that. But yes, there are many players in this space. But our ability allows us to do 2 things that most players can't do. Because of the size of our Crossett facility, we're able to have the volume while at the same time provide niche. Most of the times in this space, you see companies that are providing large volumes or companies that are providing niche applications. The work that our team is doing is going to allow us to do both. And that's why we're so excited about that and focused on how to drive the derivatized products in the end markets. So this is not just a volume game. This is not just us, yes, our capacity is going to go up. Yes, we'll have much more volume to sell, but it's not just about selling more volume. Do I want to sell more volume? Yes. But you want to sell the volume in the right application, right? In the right application. This is just a picture of the offerings which we are making today, making products today. And suffice it to say, in 2023, we have eyes on [ upwards of $70 ] million of revenue in the AFA space. Let's talk about Pavement Technologies. Very interesting application, and full of technology that most folks do not understand. Our Pavement Technologies business is, has been and will always be a very solid, high growth, high-margin business for Ingevity. And we're in the road, we're deep in the road. If you're looking at this picture here, that's about a depth of at least 30 inches, maybe more. So those roads you drive on, that you run on, that you ride your bikes on that have asphalt on them, 30 inches or more deep. And we are in every layer, every layer of that road, we are in. Our emulsions are in the base and inner layer. Our groundbreaking flagship product, Evotherm, is in the asphalt. Our polymer products are all over to preserve the top of the road. And the striping, the striping business that we recently transacted back in last October, is on the top of the road. To put it quite simply, we own the road. We own the road, we're in every part of the road. The business has shown consistent growth even through economic shutdowns. There are very few businesses, if any, that are recession-proof. The one thing you can say about Pavement Technologies is it's recession-resistant. Even during COVID, out there paving roads. Our folks weren't home -- working from home. They were out with the local state municipalities paving roads during COVID, so recession-resistant. And not only with that, but the infrastructure bill that has recently come out is going to provide a host of tailwind to the future of this business. And yes, I said I would be redundant, global expansion is key here. I'm actually heading to Brazil this evening because we have a big pavement initiative going on in Brazil. We've generated a host of opportunities down there we're going to capitalize on. We have a host of opportunities that Andrew can tell you about, who's here today, that we've seen in India over the last year. So global expansion is key, and we have the products and the technology to do it. If you think about the total addressable markets for both road markings and Pavement Technologies, it's quite massive. And because of our #1 or #2 position in each of these, our advanced technology, which we have in both technologies, both markings and pavement and the improving regulatory environment, we know that it will allow us to capture well above what we see as the industry growth now and through the end of the decade. So when we think about the Payment Technologies business, we are very confident that we will see very good growth on the order of 13% or 20% CAGR through the end of the decade. Increased focus on safety and volatility and safety and sustainability across all these segments, road markings will continue to be regulated. We'll be able to leverage our performance -- our Pavement Technologies business. We have Pavement Technologies folks all around the world. Our Ozark business is not all around the world, but we're able to leverage -- we're already leveraging the access we have, the customers in the marketplace today to grow our road markings business, and we'll continue to do that going forward. With regard to our technology adoption, we're sustainable, we're safer. We lowered emissions and we lowered the amount of energy that is needed to pave the road, which is all good for the industry and the environment. What you don't see -- these numbers are just organic growth. There was no other inorganic growth in these numbers. But suffice it to say, there are many players in the road marking space out there today, not just in North America because we visited them and not just in Europe because we're visiting them. So we have the ability to see some further consolidation in this space that we don't see today. Yes, everybody knows who the PPG is, and PPG is a great company. I used to work there. But this is road marking business, it's not just paint. This is road marking. And we're looking to see about how to further expand our presence in this space. We're not a paint company, we're a road marking company. Just a few stories on the pavement side, and we just love this technology. This is a picture from Utah. Utah had put regulations in place to lower the emissions in the pavement process, and we're in the midst of buying equipment to help suck up the fumes that would come from paving the road. This is our Evotherm technology. Historical asphalt technology is called hot mix. Hot mix asphalt goes down at 300 degrees plus and throws off a lot of blue smoke, and blue smoke has high VOCs. High VOC is a bad thing. Our technology, warm mix technology. This technology can be applied as low as 160. But for the most part, we apply between 200 and 225, or it's applied. We don't apply it, but we -- our technology goes into the asphalt. So this technology allows us to lower the VOC emissions, more options for the industry to reduce their costs, approximately 30% reduction in overall fuel usage on an annual basis and it eliminates the need for additional equipment. Very breakthrough technology that we are #1 in the world in. And when you think through it, and what -- it's important that you think through the technology that our technologies allows asphalt to be manufactured at lower temperatures, that not only provide the benefits to the folks that are [ landed ] down, but to the community and to the environment. Remember I said, there's nothing greener than Performance Chemicals. So this improves VOC, improves the air quality through reducing VOC. It reduces fuel consumption, which reduces payment costs, extends the life of the road up to 30% and can reduce CO2 emissions by up to 30%. And certainly, qualifies projects for various funding from a federal state level because of the reduced temperature that it is applied in. Another one of our technologies. This is from India, it's called cold plant recyclings, or CPR. So this is really cool if you like trains. This is a process through which you have this -- what looks like a train. On the front of the train, it's digging up the road. In the middle of the train, it's starting to recycle that product, and our products go into that and allows it at the back end of the train to lay the road down. It's an all-in-one process. That can be done on a spot basis, a continuous basis or we put satellite plants in place to be able to drive this product and expansion. It's great technology, recyclable, sustainable, green. Our pavement business is really on the front edge of the technology world. And road markings, as we've been saying, we expect to leverage our current pavement footprint to help drive additional growth in this space. As many of you may or may not know, this is a relationship business. These are -- state and local municipalities that are giving these contracts to small organizations, many of which are mom-and-pop. They want to know that you're going to help reduce their costs, you're going to keep their workers safe, that's going to be very sustainable. And overall, that's how we drive our growth in this space to technology, number one, with the relationships our people have out there in this space. Whether it's here in the states, whether it's as far away as Australia or India or down in Latin America and Canada. This is a relationship business, which directly ties with what we've transacted with the Ozark business coming on board. So if we look at the targets going forward, we see tailwinds associated with the move for both materials, performance -- I'm sorry, for road marking and Pavement Technologies to continue to grow from the macro trends driving growth in this space. Oilfield expansion continue to be greater than overall growth for the industry. New markets for AFA, both in existing and growth applications as well as additional growth in areas associated with Home, Personal Care and Animal Nutrition, all driving us to have an outlook for this business double what you're seeing today on both revenue and EBITDA. I just want to leave you with a few things. Certainly, we have a focus on growth, whether it's geographic expansion or internal markets. The innovation leader. We are an innovation leader in all the spaces in which we operate, which help drive this growth and diversifying our applications will allow us to do that also. I'd just like to leave you with that we see growth through innovation, diversification, increased optimized utilization, all provides a path for value creation across the entirety of the Performance Chemicals business. And with that, I'd like to thank you for your time and your listening. We'll be available for questions, and we'll turn it over to Ed to talk about Performance Materials.

Thanks, Rich. Make sure I've got the right one. Good afternoon. I do appreciate your time here today, and I'm excited to tell you about the Performance Materials business that I run. But first, a quick introduction. Sorry, here we go. First, a quick introduction about the business. Our carbon is unique and that our key raw material is hardwood sawdust, and we use phosphoric acid as a catalyst to create pores into that carbon structure. We have 5 manufacturing sites located in the U.S. and China, 3 sites in the U.S. and 2 sites in China, which primarily serve the China market. We have 4 -- we manufacture 4 different product groups. First is carbon powder. That goes into filtration applications, and we call that process purification. The other 3 product groups control gasoline vapor emissions in automobiles. Gasoline vapor emissions are generated by diurnal emissions. This is while your vehicle is parked during the day, the sun heats up the fuel and the vapors expand and exit the fuel tank. Refueling emissions, which are the vapors that escape when you refill the fuel tank. And then last, what we call bleed emissions. These are emissions that are the migration of the gasoline molecules out of the canister. These gasoline vapors in each case is directed towards the canister and are stored within the pores of the activated carbon. Periodically, fresh air is pulled through the canister by the vehicle's air intake system. This pulls the gasoline vapors out of the activated carbon pores and into the engine, where it's originally intended to power the vehicle. This is the process of how we capture and save 8 million gallons of gasoline a day. In each case, our granular, pelletized and ceramic activated carbon honeycombs are designed to capture and release the gasoline vapors. As you can see, the size of the canister increased with each regulation. Tier 1 regulations require small canisters and use our granular activated carbon products. Europe is currently using a 1970s level of emissions control. Tier 2 regulations require a larger canister to capture the significant vapors from refueling. Pelleted carbons are necessary for this application. Today, China's regulations are at this Tier 2 level. Tier 3 canisters are roughly the same size as Tier 2 canisters, but have the addition of honeycomb products, which converts the canister to a near-zero solution. Tier 3 is the most stringent regulation in the U.S. and Canada regulations are there today. Our carbon comes from a renewable resource, hardwood sawdust, and our carbon protects the environment. As I mentioned earlier, we saved 8 million gallons of gasoline a day. This prevents 40 million tons of CO2 every year that would otherwise be released into our atmosphere. Our carbons also purify billions of gallons of water. We continue to innovate and find ways that our sustainable activated carbon products can purify, protect and enhance the world around us. Our competitive advantage isn't in its patents, it's our know-how. We manufacture carbon derived from hardwood sawdust that has a unique pore designed, engineered to capture and release gasoline vapors. We can produce carbon with different pore sizes to meet different customer demands. We manufacture at a scale big enough to supply auto production in all regions of the world. This has led to an industry-leading reputation within the auto industry among OEMs and Tier 1 suppliers. Our product is proven to last the life of the vehicle, and there have been no recalls in the 50-plus year history of our partnership with the auto industry. We do have patents which protect the IP of our newest technology that goes into today's low-purge engines, but patents are only a small part of the story. Our size, the uniqueness of our carbon, the ability to deliver quality at scale represent our greatest competitive advantages. This slide shows our historical financial performance. Since our spin-off, we have generated CAGRs on revenue of 11% and 13% on EBITDA. Our EBITDA steps up when countries adopt new regulations, as you see from 2017 to 2020 when the U.S. and Canada phased in Tier 3 level requirements and when China moved to Tier 2 in 2018 and 2019. As a result, margins improved from low 40% to the upper 40s. We are a global provider selling in all regions of the world. If you followed us before, you have probably seen a version of this slide. The right side of the page shows our expectation of when new regulations will occur in different countries. The left side shows our different products and the dollar content of our carbon in each of the products. You see that as regulations improve, our dollar content per vehicle doubles. The big movers fueling growth are the expected new regulations in Europe, taking them from Tier 1 to Tier 2 and the dollar content per vehicle for us will double from less than $5 to $10 per vehicle. A number of countries around the globe follow Europe's regulations. As Europe moves to Tier 2 regulations, it's likely that those countries, such as India, will move to Tier 2 regulations as well. And China is expected to move to Tier 3 in the latter half of the decade, which means our dollar content per vehicle will double from roughly $10 to $20 per vehicle. Keep in mind, our product is also on hybrid vehicles. In some cases, more carbon is required in hybrids due to the gas engine being shut off for a longer period of time. Our models show that our legacy carbon business will grow even as more battery electric vehicles are adopted. Higher BEV adoption are offset by increased content per vehicle as emission standards improve. We typically use S&P Global estimates in regards to auto [ production ] forecast for modeling purposes. Using our model, we show the weighted average dollar content per vehicle to be nearly 40% by 2029, as our addressable markets only declines by roughly 5% as hybrids offer higher BEV adoption rates. Multiplying the dollar content per vehicle by the addressable market, you see our revenue increases substantially. Remember, our product goes into gasoline engines as hybrids -- as well as hybrids, which are also increasing as a percent of total vehicle production. And you may have heard today from Ford's President -- of Ford Blue say they expect strong ICE and hybrid sales well into the next decade. Using the S&P Global base case in our long-term model, we show CAGR of 5% to 9% over the next 7 years. But different people have different views of BEV adoption rates, and we show a few of those in the table on the left-hand side of the slide. If you take an aggressive BEV adoption rate scenario, we still show growth of over 3%. If you think BEV adoption will be slower than that, we could have a CAGR approaching double digits at the margins in the upper 40s. While the projections we share are focused on the continued growth we see in our legacy carbon business, we are also investing in ways of carbon can support the transition of battery electric vehicles. There is a lot of investment supporting this transition, and the technology is changing rapidly. We believe there will be a diverse number of products and solutions that open several opportunities for us to showcase how our carbon fits into these solutions. Batteries are complex and have many components, several of which utilize carbon. We invested in Nexeon, a company that provides silicon anode products and batteries. This isn't the only part of the battery we are exploring. In fact, other components within the battery are using products that are made using similar manufacturing methods that we use today to make our activated carbon. We see opportunities in the anode as well in next-gen battery technology such as solid-state, sodium-ion batteries and superconductors. The investment in Nexeon showcases the uniqueness of our carbon and assets. Silicon is better than graphite because of its significantly greater capacity, faster charging and the ability to hold charge longer. But the challenge with silicon is that it swells, putting stress on the battery cell and reduces the life of the battery. Our carbon structure allows the silicon to reside inside the pores, which effectively mitigates the negative impact of the swelling. We made this investment because we believe silicon is going to be one of the many technologies used in next-gen batteries, and silicon anodes are expected to grow the fastest out of the competing anode materials. Also, it's important to point out that hybrid vehicles will contain both a lithium-ion battery and evaporative emission canisters, allowing for even greater content in such a vehicle. In addition to the anode, we're also exploring other solutions for EV batteries, solutions that potentially could use carbon, include conductive additives but other solutions would utilize our expertise in the manufacturing process rather than the carbon. For example, making bio-based graphite would be a similar process to our bio-based carbon. The point I want to leave you with on this slide is that we are projecting healthy growth rates over the next 7 years, and that does not include any benefit from our investments and how we support the increased use of EV batteries. We are actively working on these new technologies and are confident we will be able -- we will be successful in providing solutions using our half century of expertise and the unique carbon we produce. This slide provides more details of our growth expectations. By mid-decade, we expect revenue between $625 million and $700 million, growing close to $1 billion by the end of the decade, all while maintaining margins in the mid- to upper 40s. The growth story that stricter emission regulations are coming, and as the industry leader in this space, we will naturally benefit as the dollar content per vehicle doubles as countries move up in emission standards. We have been manufacturing our unique activated carbon for more than 50 years using a renewable raw material. We have deep relationships with the auto industry. They trust us, and we have proven to be great partners along the way as we supply the world with our carbon. And finally, we grow at mid- to high single digits over the next 7 years. We expect to maintain our industry-leading margins of high -- of mid- to high 40s. With that, I thank you for your interest in Ingevity. Unfortunately, I will not be able to attend the Q&A. I do have a family commitment that I have to have -- head to. My right arm man, Jonathan, somewhere around in the back. He will be able to answer your questions as we get to the Q&A. Thank you, Jonathan. With that, I'll turn it over to Steve Hulme. Thank you very much.

Thanks, Ed, and good afternoon, everyone. Today, I'm going to showcase the Advanced Polymer Technologies segment, or APT for short, and give you an insight into our exciting future. Recently, we've changed the name of the business from Engineered Polymers to Advanced Polymer Technologies as it better describes of what we do today and also what we're aiming to do in the future. Transformational growth opportunities do exist for this business through different product line extensions, but today, my focus will be solely on the caprolactone, or as we call it, the Capa product line. So just a quick reminder of what we do in APT, specifically with caprolactone technology today. Traditional feedstocks such as cyclohexanone and hydrogen peroxide are used to make caprolactone monomer, which is then further derivatized into polyols and thermoplastics. We sell into many applications today such as coatings, adhesives, sealants, elastomers, bioplastics and also some niche medical applications. Even though Capa technology is currently made using petrochemical feedstocks, a major value proposition of Capa is sustainability. Besides the biodegradable properties of our thermoplastics, Capa technology makes polyurethane products more durable, that is to say, longer lasting versus competitive materials. This durability has the potential to lower both cost-in-use and importantly, lower carbon emissions. The Capa business was acquired by Ingevity at the beginning of 2019. And after a tough start, the business has rebounded very well, and we've shown positive growth. In 2022, our sales were $245 million. The business is highly derivatized, our sales are regionally balanced, reflecting the global nature of the polyurethane industry, and our business has a broad market diversity. This profile helps the defensibility of our business. In these unprecedented times of global focus on the environment, we absolutely believe the world needs Capa. Capa is an amazing, highly versatile material. We consume Capa polyols to react with isocyanates to make highly durable polyurethanes that last longer, or we can make polycaprolactone thermoplastics that give an excellent biodegradability performance. Did you know there was a staggering 44 million pounds of synthetic textiles go to landfill every day here in the U.S. with no end-of-life options? Well, as John said earlier, Capa technology can change that, and we'll talk more about that later. Capa thermoplastics can biodegrade in multiple environments, and this provides the industry with an opportunity to innovate multiple applications. Our early focus was on packaging, but new opportunities continue to be discovered in areas such as apparel, agriculture, and footwear. The durability aspects of Capa-based PU can also not be underestimated versus other materials as this leads to less waste. An additional benefit is due to their low viscosities, Capa polyols also provide coating formulators with the ability to reduce or even eliminate solvent. As a result of these benefits, Capa technology has a significant runway for growth. This has been confirmed by third-party consultation during a recent market assessment. We believe the total Capa addressable market today is in excess of $1.1 billion. That's around 2.5x greater than the size of the market today. Historically, we haven't fully explored Capa technology in all the key market segments shown here, but over the last few years, we've established growth strategies in all of these markets. Furthermore, we've also invested in state-of-the-art innovation center staffed with industry experts to execute this growth strategy, and we strongly believe that Capa has a bright future in multiple markets. Our 7-year plan has identified growth potential across all markets but is highly concentrated on 3 main high-growth, higher-margin end markets. These are Consumer Packaging, Automotive, and Footwear and Apparel. And the upcoming slides will showcase these applications and the Capa value proposition. So firstly, let me focus on automotive where, as John said earlier, we've seen significant growth in recent years. The bottom green color section of the bar chart represents our traditional auto business that includes top coats, polyurethane leather and jounce bumpers, which we expect to continue to grow at market or slightly above. Of greater interest is the growth we've seen in recent years in new applications such as the paint protective films and multiple applications in EV battery technologies. Although paint protective films is not a new technology, growth in China is and will remain significant. This is due to the compressing of the value chain to make this an affordable option for mid- to high-tier vehicles. This contrasts with this technology being a more expensive option in the West, where it is mainly limited to high-end supercars. Growth in recent years has been impressive, and we can expect it to continue at double-digit CAGRs. I'll give you more info on the next slide. Also, as EV battery technology developed Capa has also provided a value-added proposition in many applications. Microcellular foams are used as compression pads between the battery cells. This helps stabilize the cells and manage the expansion and contraction during daily use and recharging. Alternatively, PU adhesives are also used to perform similar effects. The value proposition for Capa is that it provides high thermal and mechanical stability, which results in a reliable battery performance. Capa is also used to make specialty surfactants that we call hyperdispersants, and these are again used to effectively disperse conductive carbon in the electric batteries, again, leading to improved battery performance. I'm sure most people in this room have experienced the frustration or even the anger at finding door dings, scratches, stone chips and staining from acidic bird droppings when inspecting their cars, especially when it was a recent investment. So paint protective films made using Capa technology addresses these problems, protecting our investment in our vehicle and providing greater resale value. Capa polyols are their polyol technology of choice in this application and make up around 50% to 60% of the thermoplastic urethane that is used in these films. The main advantages of Capa are improved chemical resistance, higher UV resistance and higher impact resistance, and that allows all of these films to be guaranteed for more than 7 years. Furthermore, such films are self-healing, allowing minor scratches to heal when exposed to sunlight or hot water, about half the frustration avoided. And later on, if you get to see on the booth, Joel, who's Mr. Capa at the back there, can show you some of these paint protective films that we've had marked up on sort of wing mirrors. So we do expect the Chinese market to grow to about 20% of all cars using this technology as an aftermarket sale. But there's also multiple signs that the technology could become an additional OEM sale, where again, you could order these films as an optional extra just as you do with metallic paint today. When fully wrapped, each car generates about $20 of revenue for Capa, and penetration into the Chinese market in recent years has advanced to about 5%. Put another way, every 1% penetration of Capa and paint protective films in the global automotive market is worth about $40 million to us. So the jury is out to whether or not the rest of the world will use the Chinese example and 20% of all cars will use paint protective films, but our ultimate vision is that Capa-based films will be used on all cars. Okay. Now switching gears to bioplastics. So what are bioplastics? If you Google this, you will find many definitions. Currently, we prefer to use the definition according to the European Bioplastics Association. That definition is that bioplastics are either bio-based, that is to say they are made renewable resources, or that they're biodegradable or feature both properties. Definitions may change in different markets, and regions may require different things. An approach we are taking in shaping our bioplastic strategy is to remove whatever barrier to entry we can to ensure Capa technology is a material of choice. For example, Capa is currently made from fossil-based materials, but we are exploring options such as circular feedstocks and even fully bio-based feedstocks. Many of the bioplastics used today are really not dropping replacements for commodity plastics, so a strategy is required to optimize properties. This is where Capa comes in. It is used as an additive to improve processing, mechanical properties or even improved biodegradability rates of other bioplastics. Today, Capa is less than 1% of the bioplastics market, which in turn is less than 1% of the plastics market by volume. Our long-term vision is that Capa should be greater than 2% of the bioplastics market, which is predicted to accelerate to about 5% of the total plastics market. So bioplastics growth will be driven by opportunities in multiple end applications. Consumer packaging has been initial focus area for us, such as paper coatings, snack packaging, bags and disposable cutlery. As we said earlier, Capa is typically used in combination with the bioplastics as an additive or a co-resin to optimize performance, and this can either be processing, mechanical properties or biodegradable performance. For example, most grades of PLA, which is one of the world's leading bioplastics today, it's only compostable in industrial conditions, and Capa can improve that. The right combinations of Capa and PLA can achieve home compostability, a more stringent test due to the lower temperature the test is conducted at. In recent years, working collaboratively with a few customers, we had advanced Capa technology beyond existing bioplastics and shown the ability of Capa to help traditional plastics, yes, that's right, traditional plastics biodegrade. I think you'll agree that's an amazing technology development, which potential really excites us. So the first example is the Styrofoam cups that all you guys have been using today, right? And if you look at the claims on there -- so sorry, first of all, what is Styrofoam? I mean, expanded polystyrene, also known as EPS or Styrofoam, it's used in many applications today. And most of the post-consumer waste still ends up in landfill despite the efforts of few to recycle. As virgin EPS is not readily biodegradable today, it remains persistent in the landfills and takes up space. The cups you were using have Capa inside as an additive, and that enables the claims made in the cup. I'm sure you'll agree it's an amazing claim that these materials can be biodegraded by up to 90% within 4 years in suitable landfill conditions. This compares with around about 5% biodegradation for the virgin material. Furthermore, there's no microplastics left behind and decomposition gases are collected and burned as fuel, adding again to the circular economy. The market for EPS is 10 million metric tonnes per annum, and every 1% market penetration by our customers is worth around $50 million in revenue to us. The second example is apparel. Over the last few years, we've been working confidentially with a key customer using Capa at additive levels that enable sustainable textiles. As I already called out, a staggering 44 million pounds of textiles are landfilled in the U.S. every day without an end-of-life option, and again, Capa technology addresses this. The technology is well positioned to compete with conventional polyesters, and importantly, it has already been adopted by more than 20 major brands and clothing retailers. The market for standard polyester as used in apparel, carpets and curtains is 60 million metric tons per annum, and each 1% market penetration for our customers would be worth around $25 million to us. We are confident at least 2% market penetration is achievable. So we all know the plastic pollution is one of the world's largest societal challenges. The fundamental targets of reduce, reuse and recycle are all very valid and important to Ingevity. Well, there's certain applications that just do not lend themselves to that logic, and as I talked about earlier, we are firm believers that bioplastics have a place in the future of plastic materials by providing end-of-life options and contributing to a circular economy. Furthermore, it is an unfortunate fact that plastics do leak into the environment. And as we know this is the case, why not use materials such as Capa, which can biodegrade in multiple environments and solve the issue of persistent pollution. A major value proposition for Capa is that it is readily biodegradable, and we hold certification in multiple environments to prove this matter. And not all bioplastics can claim this, so it is a real competitive advantage for us today. So what does all this translate to financially? Given the still nascent nature of the bioplastic space, our revenue forecast has a range of 10% to 15% CAGR. As you've probably recently seen, our EBITDA percentages have returned to the low to mid-20s as we've addressed the energy inflation impacts in [indiscernible]. Our EBITDA margins will improve further as we focus on higher-margin segments and drive innovation to further differentiate our position. As you've seen today, I've clearly demonstrated for you the exciting future that APT has. The macro trends in sustainability are helping to fuel our end market growth. We are the technology leader in application development, and more than 85% of our innovation portfolio is linked to sustainability drivers. We work closely with customers in the industry bodies to make sure that we stay at the forefront of technology change, and ultimately, the ambition and momentum of my team is to drive this business and seize the financial opportunity to grow revenues and EBITDA at double-digit CAGRs. So thank you for the opportunity to showcase APT. And with that, I'll hand it over to Mary Hall, CFO.

Thank you, Steve. So as you've heard, we have a lot going on, but we are focused on delivering our growth strategy. To recap, in Performance Chemicals, our AFA transition opens up new markets, improves our operating costs and allows us to do feedstock selection that will allow us to offer better products to customers. In Pavement and Road Technologies, we are focused on regional and global growth. In Performance Materials, we're excited about the new regulations in Europe, the draft of regulations that have finally come out. And we believe that after Europe, China will be next, and we will be there. In Advanced Polymer technologies, the focus is on growing revenue and improving margins as Capa's unique capabilities are increasingly in demand as sustainability trends take hold. As the numbers person, I'm most excited about how this translates to the financial results. As John mentioned, over our past 7-year history, we have doubled the revenue and profitability of the company. Our planned model models a doubling of revenue, more than double revenue from $1.5 million -- $1.7 billion of revenue to approximately $3.5 billion, and a doubling of EBITDA from $500 million to $1 billion, all while maintaining top quartile specialty chemical EBITDA margins in the mid- to high 20s. This generates very strong free cash flow, more than $2 billion through 2029. And again, this is free cash flow, so that's after our estimate of capital spend that you see there, the $1.6 billion. And that organic capital spend through 2029 of $1.6 billion, you can see in the pie chart the breakdown of the different cost components or spend components, with growth CapEx estimated to be about 45% to 50% of the spend, so call it $700 million to $800 million, again, through 2029. Our major growth investments will be in APT to expand capacity across all areas, the monomer, the polyols and the thermoplastics. We also plan to debottleneck and expand capacity in our activated carbon facilities to support the growth that we expect in Europe and China. And I did want to note that while our AFA transition and our Pavement Technologies business will require some capital spend to support their growth, it's relatively nominal. As you know, we have a history of employing a balanced capital allocation, and that doesn't change. Our inorganic growth is the #1 priority after funding our organic CapEx, and we plan to fund strategic initiatives that meet our fit, strategic fit, and financial return criteria. We also plan to continue to return cash to shareholders and to manage debt to ensure that we have prudent leverage and retain our access to capital markets, so we continue to keep that 2x to 2.5x leverage target at the forefront. I wanted to give you a little more color on how we think about our inorganic strategy. Our inorganic growth focus is on bolt-ons to, again, grow the Pavement and Road Markings business; bio-based chemistries that complement our existing markets and accelerate our presence into new markets; electric vehicle and non-auto carbon-related technologies and specialty polymer technologies. Some of the decision criteria that we use as we evaluate our inorganic opportunities. IRR that exceeds the cost of capital. ROIC that -- and we look at ROIC actually across the company and assess and monitor that regularly. And me in particular, I keep an eye on the time horizon because I like to be paid sooner rather than later. We look at the synergy opportunities, the likelihood and timing of those. The margin profile, consistency of earnings. Does it enhance our sustainability profile? And the roll-up potential. Does it provide us with a platform opportunity or is it a one and done? Some key takeaways. You've heard the word growth a few times today, but that is the plan. To double the revenue and EBITDA of the company through 2029, and I think we shared with you today some strategies of how we will execute that. We plan to maintain and enhance our position as the green chemical company that actually makes money while providing exceptional free cash flow enough to support growth and return cash to shareholders while delivering exceptional financial results. And remember, our plan only incorporates or reflects organic growth initiatives, so there is significant upside potential from inorganic opportunities. And with that, I will turn it over to John for some closing remarks. Thank you.

So I will be brief. We're going to take a quick break, and then we'll go into Q&A since we've been sitting here for a couple of hours. But look, we just hope you guys share our enthusiasm. We think we are uniquely positioned due to the market opportunities that we have and the changing regulatory in [ set ] environments. We've been waiting a long time for all these things sort of to converge, but when you look across our company, we see the next sort of 5 to 7 years of being an era of tremendous growth and opportunity, and we hope that you guys will come along in the journey with us. So with that, why don't we take 10 minutes? We'll take a 10-minute break, because I know you guys have been sitting here, and then we'll come back and just do some Q&A, and then we'll go out and have a reception. All right? 10 minutes. [Break]

[indiscernible] is gathering. I'll bet that this is the first Investor Day anyone's ever heard the term acidic bird droppings used. Good job, Steve, really.

Look at these [indiscernible]. Watch at those.

All right. Q&A. Who wants to go first? Rizzo, [ spring by ]. Got your hand up first.

Dan Rizzo from Jefferies. So just to start off with -- you mentioned a lot about the AFAs. I was wondering if in terms of contract sourcing, so for your CTO contracts, I think 85% it has -- is long-term. And I was wondering if we can expect something similar with AFAs or is it kind of a different model?

Yes. We are looking at that -- I'm sorry, I didn't get your name. I'm sorry.

Dan Rizzo.

Dan. [indiscernible] I didn't hear it, though. Thanks for your question, Dan. The difference between -- we're looking at a similar model, to answer your question. But the difference between CTO and what we're seeing with these oils is that there, you can see them over a long and short period of time, what the trends are. We want to be able to follow the market trends of -- we see on the pricing. So we're not traders, as John and Mary will say, but we expect it to contract oils as needed, but look at it in a way that we are able to deal with the cyclicality that John showed you.

One of the things you can do here, Dan, that you cannot do with crude tall oil despite our best attempts to synthetically create this is you can't hedge crude tall oil, right? So if you think about the big 900-pound drills that operate in these sort of plant-based oils, they all have very active hedging [indiscernible] because they -- there's a forward curve, right? So I mean, to what Rich is saying, where we want to go is to have customers, and this is why we use the term AltaVeg, right? So we use a product that for most substitutions, not new markets but for existing substitutions, we want to be able to toggle to the plant oil that has the lowest cost for us, right, but have the product certified, right? So we're staying generic and not saying canola veg or rapeseed veg with our existing products because we want the flexibility to toggle to the lowest price, right, with an already certified product. But for you guys, as investors and for us as a company, there's going to be a lot more visibility into our cost structure than we've had for a while because of this, right? Because -- and we will be able to take hedging actions that we haven't been able to do before, despite our best efforts. Go ahead. Oppenheimer.

It's Ian Zaffino from Oppenheimer. Can you guys maybe talk about as you transition to AFAs, what may be the certification process is like or the approval process is like with your customer timing-wise, et cetera, that are...

That's a great question, and it varies by industry. So for instance, our products are already being used in the Middle East, and we didn't have to get specific certifications for them to be used in our oilfield applications. Here in the States, within oilfield, the certification process is going to take 6 months or so within the payment space. As Andrew can tell you, it can take a year, easily a year. With regard to the Home, Personal Care and Animal Nutrition space, we see sight of having the BTMP on the certification, and our folks are working towards that.

But I want to speak to something that came up in the break with some of this, And look, it's part of what I said in the slides. We're in transition guys, right? So the next 9 months, as I said in the last earnings call, there's going to be some choppiness as we kind of move through these because we've got things that we're trying to do to get done with this. But the reality is many of these products, and you can go outside and look at samples, they're better than what we make historically, right? I mean, and Stacy can tell you, who's back there somewhere, we're actually spiking canola oil with tall oil rosin, right? Because it's an overengineered product and what some of our existing customers need, and as people know, we need to move rosin, right? So the idea, we will kind of move through this for a few months, a few quarters as we try to get this transition done. But we're going to emerge with a lot more flexibility and we're going to emerge with a more attractive margin profile once we get on the backside of this. So I know that for investors, that leaves you a choice as to when you want to get in or get out and how you want to participate in this. But we feel strongly that business, when we get done, it's going to be in a much better position, so.

And if I could chime in to your question. What Rich said some products may be short term or 6 months -- Sorry, 6 months, a year, that's not from today. Because as Rich said during his presentation, we've got hundreds of samples.

And we're already selling. We're already selling product today.

And we're already selling. Right. So those are coming as we produce...

I guess -- and I know we didn't disclose this, but I'm not -- I mean, we're here in a public forum. My guess is that it'll hit $70 million to $80 million of sales this year or better in AFA-related stuff, right? So that should give you some idea of where we're headed by the end of this -- over the course of this year.

It's Chris Kapsch with Loop Capital Markets. And just kind of stick with the AFA transition theme. And when I was talking to Rich and a couple of his team members before the start of this, I learned that it sounds like the Crossett asset, it's a little bit more complex, the refinery configuration versus maybe the other plants. I'm just wondering if that -- as you transition that one and dedicate it to these AFAs, does that confer any competitive advantage in terms of the capabilities? And then conversely, does it undermine any flexibility or capability you have with the, I guess, CTO refining operations?

Well similar to what I told you out there, Chris, from a competitive advantage standpoint and what I said here during the presentation, most of the companies that you see in this space are doing one or 2 things. They're buying that base product and going into niche areas or they're selling it -- or selling very large volumes. Our competitive advantage that we'll be able to do both, right? We'll be able to do both. It does not put us at a disadvantage in the market based on what we're seeing today.

The reason we chose Crossett, which it sounds like you're sort of uncovering, Chris, is it's one continuous process, but there's sort of 5 [indiscernible] that are a part of that. Like we're basically taking that one and cutting it into third, right? And by doing that, we get 3x the sort of access, right? And by moving to AFA, we're not going to have the rosin challenges in that plant. So -- but in terms of being able to continue to do what we do in the existing -- in Charleston and in DeRidder, those are mostly where we service our oilfield, asphalt and adhesive guys today. So it's not going to change our existing -- it's additive to what we do now. Tanwanteng?

John Tanwanteng from CJS. First question is just a little bit longer term, and Mary gave a little preview before. But as you look at the guidance or the targets over the next several years, do you see that a little more front-end weighted or back half weighted? And kind of help me understand what pieces are to that as you go through to 2029.

Sure, I'll take a stab at that. So the pace, I'm sure won't be linear. And in fact, the CapEx that I talked about in my section is weighted in that maybe first 2 to 5, 2 to 4-year kind of time frame. So there is perhaps a little bit of back weighting, if you will, toward the second half of the 7 years, but not significantly. You'll see financial results improve near term in that horizon.

I mean, look, I also think that it's important. Capa and Pavement Technologies have some real tailwinds behind them in the near term, right? And I think you will continue to see them put up some very, very good numbers over the next year or 2. Ed's business, now Jonathan, since you're here, will benefit obviously from these regulatory changes. But as the economy and the world sort of improves and more normalizes and auto builds improve, that business is going to have some good tailwinds, right? To me, you've got 3 of the 4 that are looking at some really great opportunities. Now what you do to discount [indiscernible] and I were debating this over the break. While it is in transition, it's going to -- this transition, I think, is well worth it and I think you'll see us make progress, but don't lose sight of those good businesses that are going to have some pretty good years.

My second question is a little more near term. Are you seeing any of your customers turnover or go away because of the higher CTO pricing and the pricing you're pushing on them right now, number one? And number two, how much of those that you're losing from the CTO side, are you picking back up the AFA side, if any?

Yes. That's a great question. If you listen to our Q1 earnings call, we talked about destocking, right? Initially was there a market destocking going on. So we're past that now and we're starting to see what happens. So with regard to CTO prices, yes, some customers have said, well, that's a very high price, and we've been able to offer them the AFA. And the great example of that is that some customers say, hey, I can't -- I've looked at the AFA, it works but it doesn't work maybe to what I want it to work, and what does that do? That justifies the price for the TOFA. It justifies the price for the TOFA. But the reality is there also are other competitive products out there, whether it's hydrocarbon-based products, and to a much lesser extent than 4 or 5 years ago, gum rosin. So we have to play that game, that it's out there and we have -- and we're dealing with it. But we are seeing customers that are transitioning back, want to go to AFA, they want to go to AFA and they say, no, I really actually want the TOFA, which is justified in the higher price that we're seeing on there today.

We want -- I mean, the target is if we get the sort of volumetric increases, right now, we're sort of 40% exposed to tall oil rosin in that business which, for those of you who've been around us know, that's kind of our Achilles heel, right, in a soft market. We always can place the TOFA. But just by doing what we're doing, we want to get that number below 20%, right? Because that number will stay fixed as we increase our fatty asset options, which should bring down the volatility in that business once we get it there.

John McNulty, BMO. So 2 questions. First one on the CapEx plan. it looks like there's about $800 million of growth CapEx, which is -- you've gone through a decent CapEx cycle, so I guess, can you help us to think about where maybe some of the chunkier buckets might be there? And then the other question would just be on the Performance Chemicals business. It looks like the margin targets for mid-decade, which I'm assuming is 25-ish or about 14.5%, so not a whole lot of difference from where we are now and then they spike up a bit. So can you help us to think about the transition of the margin profile of that business?

So I'll start with the CapEx piece of that. As I mentioned, and when you get a chance to look at the slide. So you're right, call it, $700 million to $800 million of organic CapEx. A little more than half of that in the model is actually directed, earmarked, if you will, toward growing the APT business. And as I mentioned in my remarks, that is across that business. So monomer capacity, polyols, thermoplastics capacity. So that is, again, the largest single share of capital. We are planning to do some debottlenecking and expanding capacity in our Performance Materials business as those new regulations take hold. The other thing I wanted to point out though too, I meant to mention this in my remarks, we have a really good track record of being able to flex our CapEx as the pace of growth changes because again, it won't -- we don't expect everything to be linear here. So we're good at that. And our expectation is that we'll be able to nicely match the CapEx with the growth as it comes.

There is some -- John. Just so you know, some carbon expansion built into that to support future markets, right?