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KMG Chemicals, Inc.NasdaqKMGBSidoti Co. 6th
Annual Palm Beach Emerging Growth Institutional
Investor ForumJanuary 15-16, 2009
2
Safe Harbor

• The information in this presentation includes
  certain forward-looking statements that are based
  upon assumptions that in the future may prove not
  to have been accurate and are subject to
  significant risks and uncertainties, including
  statements as to the future performance of the
  Company. Although the Company believes that the
  expectations reflected in its forward-looking
  statements are reasonable, it can give no
  assurance that such expectations or any of its
  forward-looking statements will prove to be
  correct. Factors that could cause results to
  differ include, but are not limited to, the loss
  of primary customers, successful implementation
  of internal plans, product demand, the impact of
  competing products, increases in the prices of
  raw materials and active ingredients, successful
  acquisition and integration of additional product
  lines and businesses, environmental liabilities,
  the ability to obtain registration and
  re-registration of products, increased
  environmental compliance costs of products and
  general political and economic risks and
  uncertainties.

3
Company Overview

• Manufacture, formulate and globally distribute
  established specialty chemicals
• Grow primarily by acquiring, and then optimizing,
  stable chemical product lines and businesses
• Commenced formal acquisition program in FY02
  completed seven acquisitions since that time
• Completed 72.9 MM acquisition from Air Products
  on December 31, 2007
• High Purity Process Chemicals used in
  semiconductor fabrication

4
Investment Highlights

• Unique, successful business strategy in niche
  markets
• Core businesses generate stable cash flow
• Proven acquisition program and active pipeline
• Substantial market shares significant barriers
  to entry
• Experienced management team infrastructure to
  support further growth
• Electronic Chemicals business includes very
  experienced management, sales and production
  teams
• Leverage infrastructure upgrades of FY08 for
  future acquisition efficiencies
• Strong financial track record
• Newest acquisition was accretive to earnings and
  cash flow in FY08 and Q109 despite considerable
  transition costs
• FY09 contribution will be much more significant
  with a full year of Electronic Chemicals, and
  integration costs behind us

5
CORE BUSINESSESStable Profitable Due to
Disciplined Acquisitions
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KMG Operating Companies
7
KMG Electronic Chemicals, Inc.

• Closed the acquisition of Air Products HPPC
  Electronic Chemicals business on Dec. 31, 2007
  75.4 MM total investment with 91 MM of revenue
  in 2007
• Doubled the size of KMG
• State-of-the-Art Manufacturing sites in US and
  Italy
• Key customers are semiconductor manufacturers
• 40 market share in US and 15 in Europe
• FY 08 - Annualized run rate of 105 MM under
  KMGs ownership, up more than 15
• Contributed 2.1 MM in operating income
• Strong top bottom line performance anticipated
  in FY09
• Strong Q109 net sales of 26.2 MM w/ 1.6
  million of operating income
• New business from several global customers
  phasing-in
• Gross profit margins improved from price
  increases enacted in late FY08
• Elimination of transitional services and
  integration costs

8
KMG Electronic Chemicals, Inc.

• Purchase price of 75.4 MM consisted of
• 71.9 MM in cash paid to the seller
• 2.5 MM of transaction related costs
• 1.0 MM of accrued retention bonuses offered to
  Air Products US employees joining KMG
• Appraisal was significantly greater than the
  purchase price resulting in no goodwill
• 48.4 MM for plant, property and equipment
• 1.1 MM for intangible assets
• 25.9 MM for AR, inventory and assumed
  liabilities
• As of October 31, 2008, repaid 13.6 MM of
  principal on the 70MM of debt outstanding when
  the acquisition closed on December 31, 2007.

9
Infrastructure and Manufacturing Continues to Grow

• Electronic Chemicals in Milan and Pueblo
• Our Newest and Largest Additions

Milan New Hydrogen Peroxide Purification
Equipment
10
KMG Bernuth, Inc.Wood Treating Chemicals
Creosote

• Industrial wood preservative used to process
  railroad crossties
• Approx. 20 MM crossties purchased each year in
  the U.S.
• 90 treated with Creosote
• Acquired original Creosote distribution business
  in 1991 two subsequent Creosote acquisitions
• U.S. merchant market leader only North American
  importer
• FY08 Record year in sales and profits
• Sales of 55.2 MM, up more than 26 compared to
  FY07
• Strong Q109 sales of 17.5 MM, up 40 compared
  to Q108
• FY09 Creosote sales should approximate those of
  FY08
• Creosote EPA re-registration awarded

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KMG Bernuth, Inc.Wood Treating Chemicals Penta

• Industrial wood preservative used to treat
  utility poles
• Sell to wood treaters
• Approximately 45 of the utility poles purchased
  in the U.S. are treated with Penta
• Started original Penta business in 1984 three
  Penta acquisitions since that time
• Now KMG is the only North American producer
• U.S. Penta pole treating in FY08 7 under
  record high FY07
• Sales of 26.4 MM (FY08) compared with 28.4 MM
  (FY07) primarily due to spike in diesel prices
  during Q3 of FY08.
• FY09 Penta sales are expected to be at FY08
  levels
• Q109 Sales of 7.1 MM compared with 7.3 MM in
  Q108
• Penta EPA re-registration awarded

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KMG Bernuth, Inc.Animal Health Insecticides

• Protect livestock and poultry from parasites and
  other pests
• Oral larvicide, powders, dusts, liquid
  insecticides, and insecticidal ear tags for
  cattle
• Three acquisitions since 2003
• FY08 results
• Sales of 11.7 MM, down from 14.1 MM in FY07
• Cool weather across US reduced insect
  infestations and resulted in lower demand
• Increased feed, fuel and fertilizer prices
  curtailed discretionary purchases by cattle
  farmers
• Q109 sales of 1.4 MM compared to 1.5 MM in
  Q108
• KMG holds 23 market share
• Introduced three new products in FY08
• Expanding sales to Latin America
• 2009 initial shipments to Puerto Rico, Argentina,
  Uruguay and Mexico
• Pending registrations in Venezuela, Colombia
  Brazil with sales expected in FY10
• Expect this segment to become an increasingly
  significant contributor
• Goal of 40 MM to 50 MM of revenue in 5 years
• Growth primarily through acquisition and
  expansion in Latin America

13
Significant Barriers to Entry

• KMG Bernuths products require EPA registration
  to sell them in the U.S.
• Expensive and time consuming
• Extensive infrastructure required for the
  distribution of wood treating chemicals
• Exclusive arrangements in place with certain
  strategic suppliers
• Most products require a formidable capital
  investment relative to the market size
• Electronic Chemicals require significant cap-ex
  to enter market
• Electronic Chemicals products are small part of
  competitors portfolios, much the same as with
  Air Products
• Significant investment in plant required for
  potential competitors to deliver increasing
  stringent purity levels

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PROVEN ACQUISITION INTEGRATION STRATEGY
15
Acquisition Model
16
Acquisition Model

• Seek product lines and businesses that
• Are mature require little or no on-going RD
• Provide significant market share and clear path
  toward market leadership through further
  acquisitions and organic growth
• Have niche products with established proven
  commercial uses
• Have significant barriers to entry
• Enable benefit of increased margin created by
  pricing policies and operating efficiencies
• These product lines are generally too small for
  larger industry participants to consider
  attractive

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Deal Pipeline Process
Selected Criteria applied
Suspect

• Niche
• Leadership
• Mature/proven
• Simple Chemistry

Prospect
Were interested

• Minimum GM Target
• Accretive to CF and earnings

Target
Theyre interested

• ROIC
• IRR
• NPV
• CF
• EPS

In the Works
Key financial criteria
Exclusive negotiations ongoing
In the Bag
Due Diligence
Closed
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KMG Growth Wheel
3 CORE COMPETENCIES
1
3

• Optimize operations
• Maximize free cash flow
• Capture market leader
• position

• Create greater efficiencies
• Harvest synergies
• Absorb into core business

2

• Identify, target and
• close acquisitions
• that meet criteria

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Acquisition Outlook

• Manage an aggressive, disciplined acquisition
  program
• Primary areas of focus
• Animal health expand segment
• Electronic Chemicals expand segment
• Agricultural chemicals opportunistic basis
• Have 5 production facilities with sufficient
  capacity to bring in new products
• Size range up to 30 MM investment
• Goal for next acquisition 2010
• Current economic environment favorable for
  acquisitions

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FINANCIAL RESULTS OUTLOOK
21
History of Success Growth
in Sales and Shareholders Equity

• Compound annual growth rates
• since going public in 1996
• Book value per share 19
• Sales 19

Sales
Shareholders Equity
22
Recent Results

• Q1 2009 results
• Net sales of 52.2 MM, an increase of 145 over
  Q108
• Net income of 1.6 MM or 0.14 per diluted share
  - flat with Q108
• Results included 1 million costs associated with
  the transition and integration of the electronic
  chemicals acquisition, completed on September
  30th.
• On-track to meet net sales goal of more than 200
  MM in fiscal 2009 with significant year-over
  improvement in profitability
• Fiscal year 2008 results
• 79 revenue increase to 154.4 MM
• Net income of 5.4 MM compared to 8.8 MM in 2007
  
• Earnings decline driven by
• Rapidly increasing commodity prices during 2008
  pressured margins
• Pricing actions have expanded margins in 2009
• High feed, fuel and fertilizer costs hurt cattle
  growers, leading to drop in high-margin animal
  health sales
• Transition and integration costs for the acquired
  electronic chemicals business were 1.9 MM in
  fiscal 2008. Transition to KMGs system and
  processes was completed on Sept 30th.

23
Financial Position

• Balance sheet highlights (at 10/31/08)
• Cash of 3.3 MM
• Working capital of 29.3 MM
• Long-term debt including current portion of 56.4
  MM
• Shareholders equity of 61.0 MM (book value
  5.51 per share)
• Key bank covenant ratios
• Fixed charge coverage 1.81
• Funded debt to capital 48
• Funded debt to pro-forma EBITDA 2.61

24
Aggressive Deleveraging to Position for Future
Growth Opportunities
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Growth Diversification
20
40
79 Inc.
53
80
7
2008 154 Million
2007 90 Million
40
52
122 Inc.
8
2009 200 Million
26
Fiscal 2009 Outlook

• FY09 Net Sales of 200 MM along with
  significantly improved profitability
• 1.2 MM reduction in amortization expense
  associated with certain intangible assets
• Price increases implemented in Wood Treating and
  Electronic Chemicals to offset higher raw
  material costs
• Growth from having the Electronic Chemicals
  business for a full year versus seven months in
  FY08.
• 1.9 MM was spent on transition and integration
  expenses for the Electronic Chemicals acquisition
  in FY08. The transition to KMGs systems and
  processes was completed on Sept 30th.
• Use cash flow from operations to pay down debt
  and reload balance sheet for further acquisition
  opportunities in FY10.

27
Outlook Beyond Fiscal 2009

• Strong long-term prospects based on proven
  business model
• Continuation of 5 Year Strategy
• Target of average 20 CAGR in EPS
• Targeting next significant acquisition for 2010
• Acquisition candidates sought Wood Treatment,
  Animal Health or Electronic Chemicals
• Current economy provides acquisition
  opportunities at very attractive multiples

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Summary Investment Considerations

• Strong long-term prospects based on unique,
  successful business strategy in carefully focused
  markets
• Proven acquisition program and active pipeline
• Substantial market shares significant barriers
  to entry
• Experienced management team infrastructure to
  support further growth
• Paying down debt with cash flow
• Strong financial track record
• Newest acquisition was accretive to earnings and
  cash flow in FY08 and Q109 despite considerable
  transition costs

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KMG Chemicals, Inc.

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