Q4 2019 Earnings Call
Ladies and gentlemen. This is the operators today's conference is scheduled to begin momentarily until that time you lines will again be placed on musicals. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the come more company fourth quarter 2019 earnings Conference call.
At this time, all participants are in listen only mode.
After the speakers presentation, there will be a question and answer session to ask a question. During the session. You want me to press Star one on your telephone. Please be advised that today's conference is being recorded if he would require any further assistance. Please press star zero I would now like the hand, the conference over to Jonathan log Vice President of.
Corporate development and Investor Relations. Thank you. Please go ahead Sir.
Good morning, and welcome to the course companies full year 2019 earnings Conference call I'm joined today by Mark Vergnano, President and Chief Executive Officer, Mark Newman, Senior Vice President and Chief operating Officer, and Samir, Ron Senior Vice President and Chief Financial Officer.
Before we start I'd like to remind you that comments made on this call as well as the supplemental information provided in our presentation and on our website contain forward looking statements that involve risks and uncertainties, including those described in the documents to Morse as filed with the FCC. These forward looking statements are not guarantees of future.
Performance and our based on certain assumptions and expectations of future events that may not be realized.
Actual results may differ and course undertakes no duty to update any forward looking statements as a result in future development or new information. During the course of this call management will refer to certain non-GAAP financial measures that we believe are useful to investors evaluating the company's performance a.
A reconciliation of non-GAAP terms and adjustments are included in our release and at the end of this presentation.
Ill now turn the call over to our CEO, Mark Vergnano, who will review the highlights from the quarter end the year Mark.
Thank you Jonathan and thank you everyone for joining us on this Valentine's day 2020.
As I look back on 2019 I'm encouraged by the results we delivered in the fourth quarter and proud of the resilience we showed as a business throughout the year.
[laughter] past 12 months' had been among the most challenging we've had as a young company.
However, as we've done in the past my fellow colleagues that Moore's pulled together to deliver a solid set of results consistent with our updated guidance or the full year.
I'd like to recognize our commercial teams operation staff functions as well as our support teams around the world for making the best of a challenging year.
On chart three for the full year 2019, we delivered adjusted EBITDA of $1.02 billion.
Free cash flow conversion was better than anticipated leading to a full year free cash flow of $169 million.
We had a strong fourth quarter, leading to free cash flow significantly higher than our updated guidance.
Our results reflect the ability of course to generate strong free cash flow, despite significant market and operating headwinds.
The cost in working capital actions, we implemented in 2019 begin to have an impact late in the year end point the way to better results as the cycle turns.
We've come a long way since our spin in 2015 I believe this resolve is somewhat unappreciated by the market and I know that we will continue to demonstrate our ability to deliver solid results in the face of changing market conditions.
Across the business in 2019, we achieved a number of commercial wins would drive wanted to highlight.
It starts with hitting or 50% volume target for aviate contracts in our titanium technologies segment.
We transition from a difficult first half characterized by heavy de stocking to a stronger second half as we fully utilize all three of our sales channels aviate contracts flex and distribution to work with customers and begin restoring our share position.
I'm happy to report another quarter of stable volumes stable sequential pricing and share regains in RTT segment.
You'll also recall that last quarter, we announced the launch of a new pigment product for in grades.
We are excited to be bringing that product to the market and increasing our participation in specialty tea out too in the coming years.
I'm a floor product side Opteon continues to displace high GWP legacy refrigerants and automobiles.
As you know Europe fully converted to h. oppose in 2017.
We expect to reach 100% penetration with automotive Oems in the U.S. by 2021 and in Japan by 2023.
On the stationary front, we are increasing our investment in countermeasures to control the flow of illegal imports into Europe, which are depriving the world of the environmental benefits of HFO technology.
We strongly believe that our opteon blends are the refrigerant of the future for stationary applications worldwide.
In 2019, we also delivered on three large scale engineering programs designed to set the foundation for future growth.
First we completed the startup and commissioning of our Corpus Christi up the on site.
It's a world class Worldscale facility appropriately build in the great state of Texas.
Second we completed work on the thermal oxidizer at our facility in Fayetteville North Carolina.
It's another unique facility design to control air emissions, Oh fluorinated compounds at the site.
We are confident that the plant will succeed in its mission to allow camorra the lead on the issue of Fluorinated emissions.
Finally, we completed work on our new come Wars discovery hub at the University of Delaware Star campus.
Our new R&D lab is a great story, not just for come wars, but for the state of Delaware.
We are committed to reinvesting in our home state and keeping these great R&D jobs close to home.
Last but not at least 2019 was a year in which we continued our efforts to refresh the portfolio.
In 2019, we acquired southern Ionix minerals, a leading mineral sands operator in Georgia.
In December we completed the sale of our metal means and methyl bromide business to the cornerstone chemical company, while modest in size. These deals demonstrate our commitment to taking actions to strengthen the business and drive greater profitability across the portfolio.
As you've just heard we positives to build up and we're forging ahead to improve our performance on many fronts I'll be back at the end of our call to discuss how we're thinking about the year and provide our full 2020 guidance right now I'll turn things over to Samir to go over our financial results.
Thanks Mark.
I'll begin my comments on slide four.
Well you had net sales of five and a half billion dollars were down $1.1 billion worth is 2080.
Electing volume and price had been across the businesses.
GAAP net income was negative $52 million, while adjusted net income was $419 million.
GAAP earnings per share was negative 32 cents, while adjusted earnings per share was $2.51.
GAAP figures include two onetime charges in the quarter.
First a noncash charge of $380 million. It is related to the transfer of the non active portion off on Netherlands pension plan obligations to a third party asset manager.
This francois represents the settlement and de risking of our largest pension obligation from the spin.
It results in our ability to move the vested non active portion of the Netherlands plan and associated liabilities off the balance sheet.
As a result of the transaction, we will also recognize ongoing savings from reduced pension administration costs.
This was a big win for Moore's and plan participants.
We were excited to be able to take advantage of the surplus in the plan. The degree this liability.
Second a $132 million charge related to on site remediation at the Fayetteville site.
This accrual it includes potential costs to address legacy groundwater remediation at the site along with a provision for long term operating expenses to be spend to what 20 years.
These projects are the basis for the work we're doing connected to the consent order with the state of North Carolina and are therefore subject to change.
Adjusted EBITDA of $1.2 billion resulted in EBITDA margin of 18%.
Free cash flow generation of $169 million was higher than our updated guidance from the second quarter.
Just the result was driven by stronger operating cash flow into fourth quarter as a result of improved working capital management.
Let's move to slide five to review our fourth quarter results.
Net sales up over $1.4 billion compared to $1.5 billion in last year's fourth quarter.
The drop in revenue was driven by lower volumes and prices up refrigerants and low what type of pigment sales.
Fourth quarter GAAP net income of negative $317 million and GAAP earnings per share all negative $1.94 cents reflect the charges discussed previously.
Adjusted net income came in at $92 million, resulting in adjusted earnings per share of 56 cents.
Adjusted EBITDA of $227 million was impacted by lower margins across the two main segments.
Free cash flow was a bright spot in the quarter coming in at $304 million compared to $105 million from the fourth quarter of last year.
This is run by solid cash flow from operations, a $400 million and capex of $96 million.
Turning to page fourth quarter, adjusted EBITDA was $227 million compared to $341 million from the same period a year ago.
Results were driven by lower global refrigerants prices and lower contractual pass through prices in some chemical solutions products.
Yeah, two prices declined modestly in the fourth quarter relative to this fourth quarter of 2018, mostly due to channel customer and product mix.
Lower volume accounted for additional 16 million dollar had been in the quarter. This was primarily due to lower volume Tonight titanium technology segment on a year over year basis.
Cost another one that $30 million headwind in the quarter impacted by three main factors first fixed cost under absorption titanium technologies due to lower volumes produced during the year.
Second continued impact from lost up gas quarter sales, you do NFC illegal imports into the E.
And could.
Increased cost of inventory related to the operational issues in sort of products as communicated in previous quarter.
These effects were partially offset by increased productivity from the successful ramp up off the new Corpus Christi update on site.
Not want to liquidity on the next flight.
Good morning continues to maintain a strong balance sheet, but solid liquidity.
We have managed cash and working capital well into fourth quarter and over the course of 2019.
I believe we are well positioned as you move out to the bottom of the business cycle.
Cash or they end up 29, he was $942 million up $249 million one the third quarter of 2019.
Business generated $400 million <unk> operating cash flow in the quarter, a combination of seasonal working capital unwind normalizing to add to volumes and strong overall working capital management.
Capex was $96 million, primarily related to the completion of the thermal oxidizer project at vehicle and the lab at this talk Apis.
Free cash flow for the year was $169 billion.
Net leverage remains stable at 3.2 times adjusted EBITDA on a trailing basis.
Debt net of cash stood at 3.3 billion at the end of the year.
I continue to have confidence in a balance sheet, well space and longer dated maturities.
Yeah, well position heading into 2020, having whether the tough conditions here in 2019.
I'll now turn things over to Mark Newman to cover segment performance. Thanks, Amir I'd like to start with floor of products on the next slide.
As we move through the fourth quarter, we continue to experience and negative impact of illegal HFC imports into the E U.
While there have been significant ongoing efforts. This continues to be a strong headwind working against the adoption of our opt in stationary blends in Europe.
As we approach the 2021 quota step down we're working with the even member states to help accelerate the implementation of mechanisms and enforcement actions to stop illegal imports. This includes stepping up underground investigation and enforcement.
As well is raising public awareness of this very serious issue.
I hope that as the year moves on weekend reported positive progress.
Moving onto the results net sales in the fourth quarter and full year were $614 million and $2.6 billion respectively.
Relative to the full year pricing and volume were 2% and 4% headwinds respectively. As HFC illegal imports slowed up 10 stationary planned adoption and impacted global refrigerant prices.
Adjusted EBITDA for the fourth quarter, and full year were $117 million and $578 million, respectively. In the fourth quarter the benefit from the ramp over the production of opt in at our Corpus Christi site was off.
Offset by the impact of operating issues that other sites, which occurred in prior periods, we will drive better operational discipline and execution in 2020.
As we look ahead, we continue to build momentum would stationary equipment Oems.
These partnerships are important to enable the full conversion of the stationary market to H. I suppose we.
We will continue our drive for adoption across the mobile air conditioning sector, where that focus on moving the U.S. and Japan to full adoption whether coming years.
Finally in polymers, we are focusing application development around fiveg and membrane technologies, where we have proprietary intellectual property and unique materials to help enable new market development.
On chart nine let's review the results from our chemical solutions business.
On the Q3 call I said, we were looking to close the year strong chemicals solutions and the team really stepped up in Q4.
We delivered a record profitability in the fourth quarter and for the full year 2019 on the back of strong commercial and operating performance around the business.
This came despite some top line erosion due to lower contractual pass through pricing in our performance chemicals and intermediates business.
Fourth quarter, and full year revenue were a harder than $29 million and $533 million respectively.
The drop off in these figures from 2018 was primarily due to lower pass through pricing and the performance chemicals and intermediate business as raw material costs came down in 2019.
This change was earnings neutral to the business.
As such adjusted EBITDA for the full year was a record $80 million up 25% from last year.
First quarter, adjusted EBITDA was $25 million, 79% from the prior year period.
Adjusted EBITDA margin was 19% in the fourth quarter moving up toward portfolio average and inline with our expectations for the segment.
We remain very well position with our mining solutions business in North America.
Our world class sodium cyanide technology enables us to efficiently and safely serve customers across the Americas and weaken senior to see strong demand across the region.
Gold prices, which have moved up over the past year provide an additional tailwind as our customers look to serve rising demand.
I'm proud of the investment Ed and the team have made in the business over the past several years.
Spending capital wisely to improve productivity and asset quality.
Finally in the quarter, we sold our map business to an affiliate of cornerstone chemical company.
This was a positive transaction both sides as Kim Moore's found a great operating partner for the business with significant synergy as well both parties were able to work with the state of West Virginia to save 60 jobs.
My sincere thanks to Jonathan Ed and the entire team.
Forging ahead through the holidays to get this deal over the finish line.
On chart 10, I'll cover our titanium technologies segment.
Net sales in the fourth quarter, and full year were $610 million and $2.3 billion respectively.
The team has skillfully leveraged all our channels, including the flex portal to begin the process of regaining share with our plastics customers.
Revenue was stable on a sequential basis.
Price and volume remaining inline with third quarter.
Annual prices for 2019 on a year over year basis were down approximately 1% a product of our Tvs strategy and recognition of the value in use of our type curve pigment.
Well, we don't have all the data the finished the analysis at this point.
We believe we have regained additional chaired globally as we exit 2019.
On a regional basis volume in buying patterns were stable across most of the CLO.
Europe showed some improvement after a very slow start to the year.
Adjusted EBITDA in the fourth quarter and full year came in at a $115 million and $505 million respectively.
The fourth quarter was down 42% from 2018.
Margins up 19% reflect the impact of low fixed cost absorption across the circuit due to low production volumes and raw material inflation.
Well, we expect these will begin to normalize into the mid Twentys as production volumes increase across our circuit.
With that I'll turn things back to Mark.
Thanks, Mark turning to chart 11.
As I said at the beginning of the call. We are moving forward in 2020 with some pockets of momentum and looking to build on the results we achieved in the fourth quarter.
Starting at the top of the chart, we expect to generate between 1.05 and $1.25 billion of adjusted EBITDA in 2020.
At the midpoint. This represents a 13% improvement over our 2019 result, and in our estimation reflects a good midline case for our combined business given the current global market context.
Capex will come down from 2019 levels of $400 million.
As a result, we project that free cash flow for 2020, well more than doubled from 2019 levels to greater than $350 million.
Our discipline of steady return of free cash flow to shareholders will continue.
The majority of our free cash flow will go back to shareholders in the form of a stable dividend and via share repurchases.
As Samir said earlier, we believed that our leverage remains prudent based in our projections.
Turning to chart 12.
As I mentioned on the last chart, our Capex in 2020 will decline by roughly 20% from 2019 levels as we move past some sustainability and onetime work.
Our capex for 2020 starts with the base capital required to run and maintain our assets of about $200 million.
We will also spend $75 million on regulatory and sustainability projects.
Finally, we have earmarked $125 million for several high return growth projects focused on titanium technologies and Fluoro products.
We believe that this mix of project strikes the right balance between returns and grow as well as investment in the near and long term.
As a management team, we remain focused on efficient capital spend with transparency to our investors on priority uses of capital across the portfolio.
Turning to the last chart I'd like to end our prepared remarks with a quick summary of our priorities for 2020, which I previewed with you on our last call.
In 2020, we're going to renew our focus and discipline here a couple wars.
In addition to growing our topline we must doubled down on all the things that are under our control operating uptime costs supply chain inventory and working capital management.
Free cash flow conversion will be the number one priority as we look to highlight the power of our portfolio to generate cash through any cycle.
We are actively engaging on the regulatory issues, we face at our sites in the U.S. and with the governments in Europe, we're leading the way on climate change and the phase out of legacy refrigerants.
Finally, we will work diligently to ensure we continue to make progress against our 2030 corporate responsibility commitments. Our investment here is a cornerstone of course and critical to the long term success of this company.
2019 was a difficult year, but we're working hard to make 2020, a better one for could wars.
I have challenged and we'll continue to challenge everyone across the company to dig deep this year to find ways, we can get better at everything we do.
The three of us in the entire leadership team have clear targets and are focused on executing this plan.
We will make 2020, a great year for the company with that operator, please open the line up for questions.
Thank you as a reminder to ask a question you want me to press Star one on your telephone to withdraw your question press the pound or hash key please standby when we come pilots you in a roster.
And our first question today comes from the line of Duffy Fischer from Barclays. Your line is something.
Yes, good morning, guys.
First question, Hey, Jeff as you.
You know just around the PFS charge that you took down in North Carolina. One can you talk about what's it what's been spent on the which still to be spend and then can we use that to extrapolate you know again with with a wide range or what might need to happen.
Other plants.
Yeah sure Duffy, it's Mark you know that if you go back and think about the consent order, we have with the North Carolina DQ, they're really four elements of that at Fayetteville. One was for process water emissions. The second was air emissions. The third was off site because it into water treatment in the fourth.
On site remediation think of that is primarily groundwater we already had dealt with the process water emissions. So obviously, we have a charge that oh, we have to keep water from going into the gate Bear River.
Air emissions is our T O our thermal oxidizer that we put in place at the end of December that was $100 million. We spent on capex to do that so that's been taking care of the offsite residential water treatment was a charge we did earlier in the year in 19 and that is handled in the last leg of this was really this.
Onsite <unk> mediation, so think of this charge as really.
Pumping treat primarily operating maintain so this is this is a charge that is for 20 years of operating and maintenance costs.
So it's not it's not a single charge, you're not going to see that cash flow out in a single bucket, it's going to be over a 20 year period as we operate that facility.
It to the second part of your question. So this really covers everything that we have in the current consent agreement with the state other sites. We already have this already in place at all our other sites. So we already are in compliance with all our other sites I will say that you know as you've seen in our case.
Capex that we're spending.
The 75 million on our what we call our corporate responsibility commitments spend is really well beyond compliance that is the area that we've said, we want to eliminate 99% of our air and water permissions over floor operations across the world, that's well beyond compliance because we think thats the right thing to do but well discharge number.
One we believe.
Sorts out everything we haven't the consent order with the state and too it's not not any charges you're gonna have to see at the rest of our sites because we're already in compliance.
Great and then maybe one just on the floral gases, primarily in Europe, when you talk to distributors over there.
Doesn't seem to be any reductions so far in the Chinese HFC, that's making its way in which the prognosis for that this year what are the mile markers. We should look for in a year from now are we still going to be talking about this is a headwind or will we see an inflection point sometime this year do you believe.
Hi, Def fades Mark Newman, so there's a very concerted effort.
With an industry consortium of refrigerant manufacturing rally on raising that game around enforcement and building public awareness on what is really a very negative environmental impact.
We are starting to see some indication of traction on enforcement I think last week, there was a fairly large seizure in Italy.
By the anti fraud agency overlap.
And for 2020, our assumption is you know relatively stable performance.
In terms of the underlying fundamentals of Opteon blends on the basis that you know there's not enough enforcement yet to really changed the ground game remember, though that there will be a fairly significant step down in quota is as we go into 2021. So our view is.
A you know a stable year in terms of the underlying business.
Year end, which in 2020, they'll be limited quotas sales, which is different than what we added 19, but as we go into 2021. Our view is if there's enough progress in Twentytwenty will start to see the infection point towards the end of this year and as we move in 2021.
Obviously, you know this is a setback to our opteon franchise, but we still see this as I you know a decade long growth play here both on the mobile air conditioning side, you know in the U.S. and Japan and the next few years and then you know there's a lot of work going on.
With the stationary Oems around using our blends and their future product. So we're encouraged by the lung game here. Obviously, we're also encouraged by some of the track and we're seeing on enforcement and we're going to continue to build public awareness for.
What is the equivalent of for coal fired plants in Europe with all these important illegal refrigerants.
Great. Thank you guys.
Our next question comes from the line of John Mcnulty from BMO capital markets. Your line is open.
Good morning, Thanks for taking my question, so with regard to the T O two markets. It looks like things are settling down a little bit we're actually even starting to see some price hike announcements in North America I guess with that can you can you speak to the demand that you're seeing four contracts or for customers looking to use your values your Ava.
<unk> position and locking in long term contracts is that has the demand for though for that part of your all of your portfolio has it started to pick up a in a noticeable way yet.
So John Mark Newman again, we really like where we are on Tvs.
And from a marketing perspective, you know our long lead indicators.
I've been positive.
In the positive territory for several months now and we're starting to see you know more of that across multiple geographies. So I would say, we're feeling really positive about a year or from a demand perspective.
Obviously, a lot of the work we did in the second half of 19 was around you know regaining share a recall our Q 10, our Q3 volumes were up 10% and in our Q4 volumes are are up slightly in a core.
That is usually seasonally down so we're really encouraged by the market signs that we're seeing and we're really encouraged by the response of our customers to our Tvs offering both in terms of our aviate contracts, which which represent 50% or more of our volume as well as our flex.
ER volumes and response to different programs that we've introduced or being the only produce it today, whether I read a great E Commerce channel. So overall I think we're feeling very positive about where we are and John This is mark just to add to Mark's comment.
You know we had said before that we had a lot of traction with our coating customers around aviate contracts, which continues to be the case, but we now getting traction with the plastic and laminate customer.
Where you're seeing us get our market share back with our flex portal that portal is really working for them.
And we're we're extremely encouraged by the share game that we believe we'll we'll be able to demonstrate in the fourth quarter and as we go into 2020.
Great. Thanks for the color on that and then just with regard to to the cash flow. So you you clearly unlocked a decent amount of working capital in the fourth quarter I guess as you look to as you look to 2020, how much how much more improvement you do you expect to see is there way to quantify how much more free cash flow can be on locked out of.
Out of working capital as we look through 20 Tony.
Yes, John Dismayed I'll take this one clearly as you saw in Q4 right as we kind of went through a lot of the payables as a volumes came down we took the payables hit in Q3 in Q2 last year and really started unwinding on the inventory in the receivable side in Q4, but from our point of view, we fully intend to maintain the same kind of working capital.
Operating discipline as we look into 2020, and you're going to see strong performance from us on the on the cash flow site and that's really reflected in the guy that Mark talked about.
Perhaps so on on from an operational perspective, you know the biggest area that we've talked about on prior quarterly calls is our focus on some of our or inventory. So maybe that probably is another area. We'll we'll remain focused as we go through the year.
Got it thanks very much for the color.
And our next question comes from the line of Don Carson from Susquehanna Financial Your line is open.
Yes. Thank you.
Yeah with customer de stocking apparently coming.
To close in tier two how do you see the year over year shipment to comparisons evolving in Q1 in the rest of 2020 and once you eat through your higher cost finished goods inventory.
You see margins getting back to that to 30% plus level in the second half the year.
Yes, John you know as we as we look at the.
The year I think we're going to exceed normal seasonality, but I think where you see normal seasonality across the company, but especially in tier two I think we're back to the normal seasonality kind of a look I will say that the first quarter will probably be our weakest quarter, primarily because we still have some high cost inventory flowing through so remember our rates were.
Not very high as we finished two.
2019, so that cost is going to be carried through.
But that that will pass through in the first quarter and I think you'll see a returning to mid twentys.
As a year progresses, and eventually beyond that going forward. So yeah, we we see ourselves heading to our higher margin area, but probably mid twentys, but by the middle of the year.
And we'll just given the situation in China are you seeing any issues in exporters getting to a out of China into Europe in particular and could that tighten up the market as we get into Q2.
Yes, I'm real hard one for the call right now I'd say that.
It's hard for us to see that specifically, obviously for from our perspective.
We're not necessarily seeing customers getting nervous about that so far but we are seeing some some solid volume coming into the books right now so I can't tell you it's related to that but we are very happy with the order book that we're we're seeing in the first quarter.
Thank you.
Our next question comes from the line of Laurence Alexander from Jefferies. Your line is open.
Hi, guys. This is Dan was on for Laurence.
I just want to know within titanium.
Technologies, if the rebound you are expecting or the is predicated upon a rebound in macro trends, particularly in Europe are we expecting the environment is get better to meet these targets.
Yeah, I, it's Mark Newman again as I said early I think you know the indeed it is that we look at our boys have been positive for awhile and are more widespread and we did feel like Europe started in 19 a lot. We could then it finished the year. So I'd say you know in particular.
Hello.
We're encouraged there.
Oh, Okay, and then you mentioned.
Before that the step down in Uptown and 2021 I'm sure. It could just probably a little color on what you're referring to.
You said it was going to reflect at the end leader and then and then grow from there, but I was just where do we meant by step down I'm sorry for the confusion.
Yeah. They there's an Afghan quota arrangement in Europe, and then next a quota stepped down a takes effect in in calendar year 2021.
All right and it's about it's about a 20% step down so fairly meaningful step down a in terms of you know from a C. O two quota perspective, and Dan just to give you the the color around that a little bit is that's the mechanism that the f. gas regulation has is it moves down.
Quotas H.
Each of see quotas or if you will at periods of time, the next step down being a beginning of 2021 as mark mentioned and that sort of drives.
Perhaps faster adopt the adoption of the HFO technology. So that's just the mechanism that a the European Union uses in their efficacy regulation, yeah, and I said it wrong, it's a 30% step down in 2021 not 20.
Okay. Thank you for that I appreciate it.
Our next question comes from the line of Irene This Swanson from RBC. Your line is open.
Great. Thanks, good morning.
I'm just curious you know there's there hasn't some announcements on the T ao to side if price increases maybe you can just characterize what you're seeing on the inventory side from both your perspective and your customers perspective do you think.
Weve reached a bottom and then also could you highlight the a the Asian export a situation as well has there been any disruption in exports out of China post running virus I guess, we've been reading that a a exports out of China were elevated going into the beginning of the year I just wanted to get your.
Thats on that thanks.
Yeah, I think as we've said before we think that the de stocking side, obviously is over a with their customers. Obviously, a I'd say inventories are are fairly low levels or to normal levels remember the whole pulling over aviate contracts was so.
For our customers not to have to worry about de stocking restocking right. That's one of the value propositions of our aviate contracts a is to give them surety of from that standpoint.
But we would expect that an uptick in the market.
Will create a pull that probably is a little bit higher than the normal growth that you're seeing in the marketplace.
In terms of the Asia side, you know again from a corporate point of view you know about 10% of our revenues in China. Most of our production is really in China is really floor polymer production.
That is used for China. So that production is used in country. So we're not seeing a whole lot of disruption in our supply chains from that standpoint, and again RTL to production that goes into China is primarily coming out of Taiwan. So from that standpoint, we see we feel that were.
Insulated if you will from that in some ways. So we're not seeing any disruption as a as a course company and a it's hard for us to see anything else from others to be honest with it. We just don't have that kind of visibility at this point.
Okay, Great and then just maybe you can get your thoughts.
Oh, I'm answering any impact from the production slowdown in automotive or maybe what's been the impact there on your fluoro business. Thanks.
Yeah, and then more can add any color to this but yeah. We've seen I'd say under Fluoropolymers business, we're off to a bit of a slow start.
That continue from toward the end of 2019, and two major segments automotive as well as semicon. Those are the two areas two large areas for us from a marketplace standpoint automotive continues to be week, we expect semicon to pick up as we come out of the first quarter.
Right now I'd say those markets are definitely week both of them.
Our next question comes from the line of Josh Spector from you'll be yes. Your line is open.
Yeah, Hey, guys, just a couple of questions or some of the puts and takes the floral going into first half next year. So I mean, I imagine there's still a headwind from the quota sales and if I look at first half 20. It was maybe a 40 million dollar benefit do you assume that all goes away in 20.
And kind of on an offsetting factor opteon ramp was that around the 20 million benefit in the quarter Navy offset some of those quota sales. How do you think about though is as you look at 2020.
So it's Mark M&A again, obviously court as soon as are easy to track because we report them in our other income so they're fully disclosed and there they are episodic and so yes, I would say that's a headwind.
For the full year and based on the timing will be a headwind in a particular korda, a we don't sort of give guidance of of our individual product lines, but the way I think about her f. can business is a you know opteon and we'll continue to grow on a volume basis.
We do have you know committed price downs and we are also in a very weak F can market on both a you know blends as well as our base African business as a result of the illegal imports, which we will have all year.
On the plus side of the ledger as we go through the year. Obviously, we had some operational issues last year that we don't plan to repeat this year and then a you know will have the ramp up of our Corpus Christi facility, which will provide a real benefit from a a cost per spec.
Active this year, but but a lot of that benefit is really being offset by weaker Afghan prices across the portfolio.
Okay. Thanks, Yeah, that's helpful and just coming back to T. L. Two volume side, I mean, you talked about normal seasonality.
Where would you say your current operating rates are at or they kind of in the mid 70% range and I guess, if that's right are you kind of happy with that level into 2020 or do you expect that to pick up more over the next couple of years.
Yeah, we've had yeah as we said we were operating it we don't obviously, we don't disclose or rates, specifically, but we were operating at lower rates. As we ended 2009 team those will ramp up throughout the year, we're very confident that as we get into the first quarter here in the second quarter, we'll see our ramp Uh huh.
We'll see the ramp up in our in our rates that will make a bit very significant difference on our cost you know I think thats one of things that people were little bit surprised at last year is when we were down in terms of our rates. So how much that really added to the cost to the other business. So these assets are made to run at higher rates and were.
Going to get him back there as we move through the year.
Okay. Thanks.
Our next question comes from the line of Jessica Skus from JP Morgan Your line is open.
Thanks very much.
He did your opteon volumes for sales grow about 5% in.
2019.
Sure I didnt grow more or less or how did you do.
So Jeff I I think we've always said that are up 10 are up 10, why up the mobile air conditioning part of our business is growing at double digit rates from a volume perspective.
With the automotive Oems, obviously, we've we've alluded to it before you know we have price downs, a contractual price downs and as we've said you know the overall tone another market with the Legals.
You know is depressing price on the blend side. So I'd say the way you ought to think about it is volume is growing double digit or certainly was in 2019.
Let's start to taper down lower as we get Fuller saturation in the mobile market and price is probably you know mid single digits a headwind in the year.
Okay, Great and in you know you you've made progress and getting.
50% of here.
Tanium dioxide volume offered aviate contracts.
So like my understanding of the theory of the contracts is that you get some kind of normal positive inflationary pricing.
So why aren't your average prices going up if you saw on so many contracts is it that 50% of your portfolio is going up 2% into the other 50% is going down 5% or is there a turning point do we see positive pricing in 2020, because the name.
For the called trucks.
Yeah, I think it's a combination Jeff is mark again, a combination of one we have twice a year is when the aviate contract pricing.
Gets reset based on PPI and then you're also seeing on the other side of our flex pricing right, which.
Has been counter to that so I think as you go through the year.
You will see probably a net price improvement going forward, but remember these these price resets happen at very specific times twice, a year or maybe contracts.
And then the flex pricing moves daily right in terms of what we see the market look like at the time.
Okay, great. Thank you so much.
Our next question comes from the line Vincent Andrews from Morgan Stanley. Your line is open.
[laughter].
[laughter].
Okay.
So.
[laughter].
<unk>.
Hey, Hey, Vincent you're breaking up instead, we can't really hear the question Im sorry.
Hi, This is Steve <unk>, yeah, well, but are now.
Okay, and little better yeah, if you're in speaker, you might want to jump off.
On my headset, <unk>, but anyway. So there was.
On the cash side of things you had a receivables securitization facility that used to entered into the third quarter. So just wanted to clarify on the working capital side is this benefiting your working capital at all and then are you expecting any further benefit.
In 2020, and your cash rents from from this facility.
Yeah, I know daughter Air securitization facility is on balance sheet. So it does not impact the free cash flow you would traditionally look like.
I just wanted to get things and write off balance sheet will wouldn't do it but our AR securitization facility is on balance sheet facility.
Okay. Thank you.
And our next question comes from the line of P.J. Juvekar from Citi. Your line is open.
Hi, good morning, It fair petering out for PJ.
Good morning, you hiring.
You earmarked a 125 million for growth Capex of Fat does that include expenses for 10% circuit expansion in CCI out too as well as any additional putting make rates that you intend to introduce some markets.
Yeah. If you if you look at the growth Capex that we we have just a couple features around that one is that it's a good balance between floor products and TT.
It's a good balance between topline.
Growth opportunities as well as improving cost position and all of these projects are well above 20% IR are so they're all good projects and yes. They do include some of the kept capacity work that we've talked about in the past moving that along so that is part of the portfolio of capital projects, we have within the T. side.
Helpful and for my follow up question earlier, the share units that you were going to halt a few grade sort of high GWP refrigerants.
Those customers that were impacted then that you how many of those have converted to opteon substitutes.
Yes, well the obviously that was the intent there that that that's that's I mean this was a very small product line from that standpoint. It was the highest GWP product line, we have in the portfolio. So most of those customers have already made the bridge over a two to Opteon and age.
To oppose going forward.
So I don't believe this is going to hurt anyone from that standpoint, and obviously, it's just part of the though the pruning we continue to do on our portfolio as high GWP refrigerants become dinosaurs and move out of the portfolio.
Yeah.
Great. Thank you.
And our final question today will come from the line of Jim Sheehan from Suntrust. Your line is open.
Thank you good morning could you. Please provide an update on the litigation with Dupont is the process going as expected and any sense of timing for when that might be resolved.
Yeah, So Jim obviously wouldn't we don't comment a whole lot on a on legal issues I will say, we did have our time with the with the magistrate. We thought we presented a very strong point of view and strong case and that is now in his hands and we're hopeful that.
In the next couple of months, we'll hear back from.
Thank you and on chemical solutions.
You are really executed well in 2019.
Your margins have moved up you. Obviously, you know had record performance how sustainable is your you know second half in your fourth quarter margin level or what kind of margins do you expect to generate in 2020.
Yeah, Yeah, we've been working to really get this business back to closer to our portfolio of business and you know and his team it really done a nice job there and.
We expect a test to stay in a with a double digit EBITDA margins as we ended the year as we go into 19.
Really on the basis of our continued growth in our mining solutions business as as we approach the year and you know I just want to remind you and everyone that when we spun we talked about this portfolio and we said that you know with with the hard work focusing on the growth.
Good morning solutions, and really looking at the other parts of the portfolio that weren't additive.
In terms of margin that we would get this segment.
To be.
Up to the.
Average of the rest of of company and you know we booked at 20% EBITDA margin you saw in the in the fourth quarter, we think Thats. The right margin for this business going forward lots a hard work to do that and the sale of the meddling means business was part of that you know that was not additive to us from an EBITDA perspective, and so that help.
It's there so the pruning of the other portfolio and the focus on growing the mining solutions play really is something we've talked about for the last several years and now you see the results of a lot of hard work by that.
Great if I could ask one more thing about <unk>, there's a competitor that's talked about rationalizing some sulfate T O two capacity in Europe at the end of the year you know what kind of impact do you think that might have on supply demand in the region.
Yeah hard for us to <unk> to give a sense obviously, there's certain of those end uses we intercept and some of those we don't obviously less capacity in the anywhere is going to probably make the market conditions, so little bit tighter but.
Really we haven't seen any impact personally around that.
Maybe I'll just add we really we really like the market, where we see it this year and you know as we said earlier I think we fully intend to continue to regain our capacity share as we see market conditions improve so we're really encouraged me what we see here.
Thank you.
I would now like to turn the call back over to Mark Vergnano, President and CEO I've come or.
Well, thank you Lisa and <unk> to everyone as I mentioned throughout the call.
We're all very encouraged by our progress says we ended 2019.
Our leadership team is fully dedicated to deliver the commitments. We've set for 2020. So for all of you happy Valentine's day and as always thank you all for your interest income Wars.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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