Q1 2020 Earnings Call
Good day and welcome to the Trust first quarter 2020 earnings call.
Today's conference is being recorded after today's presentation, there will be an opportunity to ask questions.
Ask a question you May press the Star then one on your telephone keypad.
To withdraw your question. Please press Star then.
I would now like to turn the conference over to Jeffrey Schnell. Please go ahead.
Thank you casualty and good morning, everybody I'm, Jeffrey Schnell director of Investor Relations for vendor toward materials. Welcome to then of course first quarter 2020 earnings call joining us on the call today are Simon Turner, President and CEO, Kurt Ogden Executive Vice President and CFO.
This morning, we released our earnings for the first quarter 2020 via press release and posted the release and accompanying slides for web site.
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During the course during the call we may make statements about our projections or expectations for the future.
All such elements and statements are forward looking and while they reflect our current expectations. They involve risks and uncertainties and are not guarantees of future performance.
You should review our filings with the FCC for more information regarding the factors that could cause actual results to differ materially newsprint projections or expectations. We do not plan on publicly updating or revising any forward looking statements during the call.
During the quarter, we will also refer to non-GAAP financial measures such as EBITDA adjusted EBITDA adjusted net income free cash flow and that.
You can find the reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website.
It is now my pleasure to turn the call over decided.
Hi, Jeff Good morning, everyone before we get going on the cold today I'd like to on behalf of team Dennis will send out best wishes to old participants on the goal and we hope you on your family's remains tight.
Sometimes.
So we yes, I know switches to see I'd like to stop by turning to slide three.
I just want a strong stops the yet and in the first quarter delivered 57 million of adjusted EBITDA on 11 cents of adjusted diluted earnings per share.
We continue to make progress than our strategic priorities.
Executing on our business improvement program and we have responded decisively to the unprecedented challenges.
Bodycote 19.
Turning to slide school.
While the coldest 19 pandemic had little or no Q1 results a disruptive locked down some economic impacts the continue to unfold are unprecedented.
All this doesn't know true our though it is important to note that bennettsville has navigated through a number of industry demand destruction isn't.
Both in 2000, a night nine and more recently the second half of 2018.
Along with several other challenges.
We haven't experienced team while the severity of economic impact remains largely unknown I am confident we can deal with the impact on our business.
In each of the part challenges it was crucial to be proactive.
Sorry recently honestly.
We have done just not I'm encouraged by our progress.
In this regard I want to outline key observations about selfishness outline.
Hi, My leadership team and I couldn't be implemented a range of actions prioritizing the safety our employees I mean checkers give our operations.
That's the office space employees are working remotely and we have put in place duffel states caused to protect our manufacturing site.
We are currently operating all manufacturing facilities in accordance with local guidelines.
Additionally, we have a nice that a wide range of other safety measures, including social this thing and reducing the number of people present on outside.
That's just portfolios provide some keystrokes robot is against the impact of hope at 90.
We have greater sales in the last exotic locations. Some of these products are critical for downstream products used in the protection the treatment of disease.
Excluding medical Grey Fox P I'm food [laughter].
Well so it's both though he was largely using food packaging applications, which are shown great resilient.
Impacts does it comes down to tell you doctorate on them.
We already see the strength, but it's an older caught me by application.
Oh, it's 19, how to limited impact on our operations in the first fortress Twentytwenty, well monocytes resigned able to all right production is a lines talk customer tell you. This approach. This approach enables us to meet customer commitments, while balancing out strategic priorities.
Well in close collaboration with our customers I'm flying some money and mitigate potential risks to the supply chain.
Most Sheila multi line production, that's where it gives us flexibility to respond a plan, which we intend to build on utilize this government.
Programs and allows for production moderations to be cost optimized with limited pressure on margins.
We expect to go to demand will decline by 15% to 20% sequentially in the second quarter huge according to Clarkson.
This is based on April actuals current order book I'm customer discussions I will hop regional differences.
In response, we are implementing a range of actions to meaningfully reduce our cost free cash uses and improve our liquidity.
These actions are incremental swell ongoing business improvement program.
We also for Q start Twentytwenty planned capital expenditures to approximately $16 million a reduction of approximately $25 million compared to swap prior estimates.
In addition, we just backstopped phase cope with 19 response time will provide approximately $20 million a costly in twentytwenty turn a range of actions.
We see many raw material prices in energy costs trending down.
Particularly those Houston off sulfate process I'm, taking with our advantage on the low parcels paid or we see if possible.
Direct cost tailwind is achieved this year.
We are maintaining an aggressive stance towards managing our working capital was for inventory control.
We ended the quarter, we got 216 million of liquidity consisting of cash availability under our ATM.
We continue to assess the impact of cobot 19 on off business I'm about densified additional measures, we can tight shouldn't conditions warrant.
Overall I believe we have a strong plan in place I, coupled with the experience of associates enough business I'm confident that that Michel will emerge from the stronger I'm not the steps youre, taking response to the pounds down it will better position fenichell for the long term.
Turning to slide five an op cost programs.
Strengthening emphasis on improving all Nashville was phenomenal park get Bennett.
We didn't live it's an additional 4 million us benefits from our 2019 business improvement program in the first quarter unexpectedly live a 13 million for the full year.
We plan to compete all options necessary to deliver on a full 40 million target right at the end this twentytwenty.
Senior year, the full run rate level. However, the timing of fixed elements, maybe adjusted in response to the cobot 19 pandemic.
We continue to implement targeted actions to improve the profitability of all color pigments business. These efforts, which consists of both cost and operational efficiencies are incremental swap business improvement program I'm talking about $10 billion offended with respect to deliver subsequent to the conversation about 2019.
Okay.
I was I briefly mentioned, we expect 20 million of savings in Twentytwenty relate to actions. We are implementing in response to cope with 90.
In addition to my own salary reduction we have implemented a range it measures throughout the organization, including Furloughing employees, losing how does the talk time salary freezes and changes to bonus structures. We have also broadly reduce all other discretionary spending.
These measures are necessary to meet our objectives, while I'm pleased with the execution of all cost initiatives, we've been seeing some monistat [laughter] those at nine <unk> business I'm are assessing the need for additional actions.
And our ability to deliver the targeted benefits as promised.
Turning to slide six and often titanium dioxide segment.
In the first quarter Pos opinion dockside segment generated 46 million of adjusted EBITDA compared to 30 million in the fourth quarter 29 feet I'm 61 billion in the first quarter of 29 thing.
Our average C O two selling price declined 1% in local currency compared to prior year period, but remain stable globally on a sequential basis for the fourth consecutive quarter.
This reflects our ongoing approach if nothing else to buying back what the customer commitments to reduce margins.
Hi, standing dockside Collins declined 1% compared to the prior year period.
Improved sequentially in line with historical seasonal.
This was primarily a result of low, especially tier two volumes, partially offset by higher function on differentiates its you know Tuesday.
Continued strength in the south new products.
Looking at all business regionally.
In North America demand improved on a year over year faced this I'm was roughly flat compared to the fourth cool stuff.
Pricing in the North American region remains relatively stable.
On a year over year quarterly reports the basis, reflecting on customer mix on our customer base that approach.
Demand in Asia was flat compared to the prior year I'm down low single digits sequentially, primarily reflecting on customer and product mix in the region I'm Cobot 19 disruptions.
Europe is our largest markets the T O too.
Compared to the first quarter 2019 volumes in Europe increased modestly benefiting from higher styles of new differentiated products I'm improved demand, especially [laughter] products, which we are overweight compared to the industry.
On a sequential basis demand improved in line with historical seasonal.
In local currency pricing was relatively stable on both the year over year on sequential basis.
Perfect 19, how to limit you didnt nocturnal business in the first quarter our position in Asia is limited to our manufacturing facility in Malaysia on the export specialty products.
As to China represents approximately 5% of total styles, we saw strong demand for plastics applications relative because.
Some of which are used in the healthcare food packaging sectors for a variety of applications and we also benefited from continued growth when you bought it.
In the first quarter raw material costs move.
Pardon Merrily high grade ores, these headwinds, which were inline with our expectations, what Pasha, partially offset by lower energy costs lower I should do you in a cost on a 3 million benefit from up business improvement program.
Turning to the outlook.
As I mentioned earlier Cobot, 19 house crazy unprecedented disruptions around the globe.
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We expect them on frosty or two products declined 15, 20% into second quarter with regional and application differences, but that's the first quarter, we expect pricing will remain stable.
We remain vigilant on a self help initiatives on expects to continue to benefit from up business improvement program.
We expect that the mom or.
Following the close at 19 pandemic, however, we're not going to trying to predict the timing or trajectory.
It is worth noting that countries and regions already beginning to emerge lockdown, albeit the differing rights in the interim we got balancing on they assume actions with our longer term strategic targets. We are aggressively addressing our cross assessing further opportunities to enhance our competitors.
We remain committed to our customer Taylor <unk>.
While we expect near term disruptions, we can seasonally but longer term T O two industry fundamentals remain favorable and not all strategy will better position so for the future.
Turning to slide seven I'm foreman additives.
Revenues declined 5% compared to the prior year period, primarily driven by a whole percentage decline in volumes due to soft conditions in certain coatings and construction applications.
Average selling price increased 1% can pass the best fourth for 2019.
Colored pigment volumes declined compared to the prior year due to low demand products sold in construction related applications.
Oh, yes optimization as we exited some low margin business.
This was partially offset by improved demand for certain applications on an improved cost position, resulting from our ongoing targeted cost and operation improvement initiatives.
Tim to treat and volumes declined compared to the prior year period, primarily due to low construction activity in North America, our average selling price fruit.
Due to favorable mix within the business.
Functional nonsense borrowings was flat compared to prior year period, not said, we continue to be impacted by soft demand, especially in automotive coatings, which apostrophe, partially offset by strong get them on for plastics.
We are taking meaningful steps as part of our business improvement programs, while southeast market challenges and improve the profitability of this business [noise].
[laughter] Coleman audits of segment generated 22 million of adjusted EBITDAR and of course that up 7 million compared to the prior year quarter. This is primarily as a result of all self help initiatives low cost on our customer taking that approach.
We expect Comac nine seem like this the impact your mom from performance segment in the second quarter.
We believe the impact will be most of the functional additives business due to its exposure to oil suncoast.
However, we will likely see a broad construction.
We continue to explore potential sale of kinda pigments business. However, the process currently on pools due to the code at 19 bar.
We expect there was you the frozen as soon as practical.
I'll now pass the call it could just got stuff and I suppose I will then return to provide some additional.
Yes.
Thanks, Simon let's turn to slide eight.
In the first quarter total adjusted EBITDA declined 3 million compared to the prior year. The decline was primarily attributable to an adverse price mix in our T. O two business and was partially offset by lower costs, including the benefits from our business improvement program.
Compared to the fourth quarter at 2019 total adjusted EBITDA increased by 34 million. The result was driven primarily by a seasonal improvement in sales volumes in both T O two and performance added yes.
Positive price mix and a meaningful improvement in cost, including the benefits of our business improvement program also contributed to the improvement in EBITDA.
Let's go ahead, and turn to slide nine and our capital resources.
At the end of the first quarter net debt totaled 781 million and our net leverage ratio was approximately 4.1 times, our trailing 12 month adjusted EBITDA.
This is higher than we prefer as our objective is to run the business with less than three times net leverage.
Total liquidity was approximately 216 million at the end of the quarter, consisting of 25 million in cash and 191 million undrawn availability under our asset based revolving lending facility.
As shown on slide we do not have any significant long term maturities until 2024. We believe this gives us ample runway to navigate the cobot 19 pandemic and improve our credit metrics.
It's Simon mentioned, improving our cash flow is a top priority for advantage for.
Compared to 2019, we expect to reduce our cash usage by more than $100 million.
Let me address the individual line items of our cash uses.
Updated outlook for capital expenditures in 2020 is 60 million, possibly which was spent in the first quarter. This is a reduction of approximately 25 million compared to our prior 80 to 90 million range and nearly 50% below 2019.
We expect the net change in working capital to be a modest source of cash in 2020, it's a subject to market conditions and other factors, including additional actions to manage our inventory levels.
Cash restructuring payments in 2020 are expected to total 15 to 20 million.
It's primarily includes our ongoing business improvement program and the closure of our former Kalay, France site.
Our cash uses in 2020 are expected to be approximately or excuse me. Other cash uses and 2020 are expected to be approximately 75 million, primarily consisting of pension obligations joint venture capital expenditures and legal fees, we are exploring opportunities to reduce these items.
In 2020, we expect our adjusted effective tax rate to be approximately 35% consistent with 2019 as we apply a normalized suggested rate to better reflect the current weighted average tax rate applicable under the various jurisdictions in which we operate.
We continue to expect our adjusted tax rate to be 15% to 20% in the long term.
In 2020, we expect cash taxes to be less than 5 million.
Finally, our Corey related expenses are expected to total 15 to 20 million in 2020 down from an outflow of 64 million in 2019.
We recognize the importance of returning to positive free cash flow and remain intensely focused on improving our cost and reducing our cash uses we continue to assess the impact of cobot 19 on our business and liquidity and are prepared to take further action if market conditions warrant. We're currently at.
Flooring traditional financing and other alternatives to bolster our liquidity.
With that I'll turn it back to Simon.
Thank you could.
Turning to slide 10.
I'm pleased with our first quarter results, which demonstrate the value of our custom tailored approach and executing on my self help measures in the near term, we expect experienced significant market challenges, we will take all necessary precautions and stuff, but G box targets. These include closely managing all production that wasn't working capital.
Executing on our cost initiatives on protecting the safety of our employees on the integrity.
Notwithstanding code nine teeing up strategy remains as follows.
We are committed to our customer tailored approach I wish we actively manage on production network and inventories along with the EMR implementation of a more diverse range of customer agreements. The net anticipated effect reduces mark margin volatility and improves visibility.
Uh huh.
We are focused on strengthening our leadership position in the specialty and differentiated CEO too I was wondering proving that makes an outperformance I suspect.
These products off the margin in market robustness benefit.
As a reminder, on new products contributions most of all volume growth in frenzy nine feet and we continue to build on the success than the first quarter funds.
We are focused on enhancing our competitive position in all our businesses. We have kind of a 24 million of all 40 million business improvement program and expect to deliver the remaining cost and operational efficiencies.
Actually my highlights. It's once you mentioned that in direct cost saving in Twentytwenty, Vermont. Since we are right to be taking in response to the.
We are also aggressively negotiating lower raw material costs, including pools, we offer pests.
It's pretty pretty but let's see and all the could you as necessary.
We remain intensely focused on reducing our cash usage and proving out free not.
That's correct mentioned, we expect Dr. excuses and turns and frankly, we'd be more than 100 million lower than 29 study and we continue to target more cost savings.
We are fully committed to maximizing shareholder value through active portfolio optimization, although the color pigments sell purposes is temporarily on pools. It remains a strategic priorities on it so and we expect it to resume as soon as feasible.
These are not an exceedingly challenging times, we cannot predict the full impact the situation will have on Twentytwenty. However, we have visibility in the near term trends implementing prestigious to help mitigate the impact.
We remain confident in our strategy on the longest some industry fundamentals the aggressive actions we are facing not prepared.
Well. It enables then it's supposed to emerge from the stronger and better position. So we talk customers needs and create long term value for shareholders.
With that we thank you feel continued interest in Bennettsville would now like to open the call for questions.
Thank you at this time well open the floor for questions. If you would like to ask a question. Please press the star Keith Fault I don't one key.
Star one to asking audio question, if you're using a speaker phone. Please make sure to take out the handset to allow your signal to reach our equipment again that star one.
My first question comes from David.
Sure at Deutsche Bank.
Hi. This is there's a lot here for Dave Oh, I'm, sorry, I'm kind of guidance of 15% to 20% Yeah. What's your volumes declined to you what type of percentage to that translate into year on year over year basis.
Sorry could you repeat the question along as a bit interesting.
[laughter].
Sure.
[laughter] basically your audio is going in and out.
[noise] Kate can't hear me, but can you repeat your question at this time, we are now able to hear you.
Yeah. So on your guidance of 15% to 20% Yeah. What's your volume decline can you talk about what type of percentage does that translate into the out year over year basis.
Yeah, I mean, we don't provide guidance on a year on year basis, but I think you know looking throwing numbers you can see there's been a strong rather than of stability in the business. These cost 12 to 15 month, whether that be on the volume or price then.
And then Oh, I guess that can lead the industry has proposed greet you six and price increases in North America, how much if that increase do you think are driven by higher raw materials.
How much of that the E G copper the raw materials.
Well just jumping in here, we're having a hard time hearing you, but I believe the question was as it relates to the announced price increases that we had put out how much of that is attributable to higher ore costs.
This is mark and then as you can imagine we don't we don't parse that out.
We.
Announced price increases based on what we think though the market will bear I. It's generally a combination of those factors ER and and had said that leads to the announcements that that we generally have but it's always market based.
Okay.
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[laughter].
Nick.
Question comes from John Mcnulty of BMO capital markets.
Hey, Good morning, guys. This is colton bean on for John.
[noise] somebody doing my first question.
Hi, So my first question for you if you see raw materials, having about potential to become deflationary later in the year are you at all concerned about your ability to hold price in a deflationary right environment.
Well I think you know it's an important point the notes as I've said entity that we have seen very successful.
And taking steps to our customer tell you that approach to manage up pricing.
We still further stability.
Glenn Chile in one Q I'm pretty stable year on year to we are not prepared remarks, we said, we expect prices to remain stable in the second quarter. So nothing is pretty clear near term what was saying about pricing.
I think you know as we said in the prepared remarks, we not prepared to venture any speculation about the second hall.
Well, we always say to you is that clearly we've put out there a very specific guidance about suky, what the impact on all on our volumes and Oh demand.
And its very difficult to say beyond that how about demand profile will will play out the only thing I would note is that or you know in all countries well no countries, but all major regions of the world.
No we are starting to see a post. This is tell you placed with the emergence of locked down a that includes outlets that style products that contain our product. So that is encouraging but what shape or you know a recovery could take I'm afraid, we do not prepared to venture a guess that Don.
Okay. Okay. Thank you and just as a follow up then I think in your intro remarks, you mentioned a few over the back end markets that are holding up a little better could you maybe talk about some of the end markets, where things are a little more challenging that are contributing to that 15% to 20% volume decline in second quarter.
Yeah, I mean, nothing that's just recap what we said is you know if you think about 15% to 20% or not you is assembled through you know all right pull actuals, our order book, which we have some visibility probably a bit more limits. It then we would expect to have at this stage are proceeding I'm just.
Machines with our customers you know negotiations about customers are very important cool.
So I was hopeful himself you we operate in all three major regions. We seek both regional differences I'm, we see application differences and the regional perspective, clearly that locked down in Europe came later than Asia, I'm was pretty comprehensive across the block.
In the U.S. I wasn't quite the case, so maybe you know not quite as big an impasse in the United States from a regional perspective, but she'll point about applications. We continue to see cell site containing specialties and inks hold up well and we can see need to see plastics again, a hold up well.
Obviously, the areas, which I'll hold up less well then the aforementioned up would be decorative coatings in some parts of industrial coatings. So no I think you can access fairly well publicized.
Public data about how some of the coatings companies see the well, but how should give you a few about why we think all product portfolio.
Looks more robust I, probably put paper in there with coatings is one area, which is being you know more adversely impacted.
Okay, great. Thank you very much.
Our next question comes from Laurence Alexander of Jefferies.
Hi, Good morning, this is Kevin I stuck on for Laurence.
I take my question is Ah.
Technical has to do it does basically the cost savings that you guys mentioned 20 million in 2020 I'm. Just wondering if you guys got funny cadence or maybe over the three quarters of what do you expect to see a those savings.
Yeah, I mean look we haven't given the breakout the cadence, but you know what we have said is that not a program we've been proactively calling on Saddam broken we started on program. So you know we started off program little wouldn't already with with two thirds to three quarters of the left I think given the new.
Sure if those savings just relate mainly to personnel costs, you know furloughs part time work and so forth you couldn't think about them, it's fairly evenly spread across the yet.
Okay, great. Thanks, and then just back to the T O two volumes that I guess the visibility you have in April so far being down 15% to 20% I'm. Just curious how you guys think about decremental margins.
Segment.
I'm, just sort of working through the model here.
Yeah, Kevin So as we think about margins. So we think that we have the ability to fine tune our asset base.
Accordingly, such that a any impact on margins would be pretty limited. Yes. We are match our production to what we see in terms of market demand.
Yeah, maybe we can just that owns about you know we have a you know cell site. So that includes network here in Europe and around the globe that lends itself or with a number of lines and some modularity to be able to you know how flexibility along with Oh, great place. So we have talked flexibility as we mentioned.
Ill prepared remarks, you know we also have access to quite significant governmental employee assistance programs. So clearly we will hold up in mind with any unit production trimming that we undertake a in the various jurisdictions with as you're probably aware you know those sort of fellow schemes are valuable in places like you know.
UK.
Italy, Germany et cetera. So that's another you know two we have in the cobot armory as it were to come box you know any reduction in that sounds funny.
Great. Thank you.
Our next question comes from Duffy Fisher of Barclays.
Yes. Good morning question just on Oh.
[noise] can you hear me.
Oh, you did break down, but I always try agenda.
Okay, sorry, so a question just on some of the upstream or.
South Africans are pretty big supplier of war for the industry. They had to hiccups, you know kind of into quarter, one around some labor issues and then a mine shutdowns around uncoated. So just what impact have you seen you know on the water supply for the industry because of that and then can you remind me where are you.
Yes, it is far South Africa, supplying you or vis-a-vis are you bigger or smaller than the industry.
Yeah. So the second part of question W. Very clear was heavily underway in South Africa or from an industry perspective, we take a very limited amount of product out of rich its but.
The analysis your first point of course, you're right does that with some disruptions, but I think you know we had a plan even prior to the pandemics to cope with those reductions.
The pandemic now evolving the way it has not taken you know to supply concern away. So I think the answer your question. There as you know, we we don't foresee that it seems.
Okay, Great and then just in general how would you characterize the Chinese product flow into Europe. So far this year.
Yes, I think an important point to note about the Chinese situation. If we go back you know I look at least last three or four years the patent that we've seen.
Has continued on aggregate, even though she is namely a higher export fractions, So Asia and other economies are smaller fractions into Europe, and North America or with a trajectory. The is gradually sort of talked all around the million tons. So that's the kind of live on these cross border.
Five years, we've gotten used to dealing with not a there's no question that China has been on a quite a long range cooling a dynamic these past couple of years, even before the pandemic, but as you can appreciate unit backend allow us to friends under this year the domestic operation in China or be domestic economy has been pretty pretty bad.
We've seen now has been some compensate three exports.
From a China or we could see that could be a I'm more troms didn't affect outside the market recovers more in China, we could see not coming back down, but you know we still hold swap you that the overall you know yearly aggregate talked of exports not dissimilar to what we've seen it both in absolute amount.
On the weightings, we did that.
Your husband, a slight pickup early this year into Europe, and North America's Chinese product, but again, we don't feel has anything more fundamental we see that caused a longer range continuum.
On hardly manageable.
Terrific. Thanks, guys.
Hi, Thank Stephanie.
Our next question from can have turns off course of Goldman Sachs.
Good morning. This is Don Campbell on for Bob I'm talking about the competitive market dynamics, you're seeing in tier two one of your competitors mentioned continued weakening of share during the quarter I'm. So I'd love to hear kind of what you saw.
In terms of that kind of.
Marketshare dynamic in the first quarter and then also good looking forward and.
The second quarter as well.
Yeah, that's coming in this important elements that we stay very clearly you know obviously, we know hits its whole calling on behalf of either all competitors all the industry at large and it but we more than half youve caused to talk about Venezuela.
And what we've seen inbound it's all very clearly I think illustrated on one Q statistics is a you know we've seen a very stable pricing.
We've seen pretty stable volumes now it's true you don't want to 19 over 18 basis, we have some pickup because of the acquisition the laminates and some new products, but you know my my basic perspective with remains unchanged is that we you know we've really focusing on our own game.
It's about target market and it's not about market share gain or loss on I think on numbers is kinda back that out.
That's helpful and in terms of.
Industry volume trends.
Typical industry volume increase.
The first where the second quarter, Oh man on the back of that how does that.
A shift in combat.
Typical seasonality impact at the working capital cadence for the year.
Well, it's so in general how generalities here. So let me close these I'm not exactly general times, but why can somebody was we saw.
Very typical seasonal pickup in volume once you have a full cute inhibits two of course, we would've expected to see you know on jump from all a double digit jumped from in percentage terms from the first quarter into the second so he is a two I think you know would've been a it would've been a pretty maybe towards digital doubled.
<unk> a kick out.
So we know gonna see that's sort of typical 5% to 7% we might see you know on this occasion and Ah speaking in general terms on the working capital Troy you know, we we've observed in our business over multiple years later in the first off we done generally have a use of cash and then a relief in the back.
Oh of course.
Could well be moderated the Shia because all the meshes with taking because of the statistics, we've thrown out for the pandemic into second quarter. Nothing you know reality as we spend pretty much at all for capital in the first quarter as well. So so you know they simply some broader cash impact so suffice to say you know however, mark.
Conditions present, we will control our inventories.
I'll focus on industries.
We are clearly.
And we won't hesitate to make sure they stay in alignment and that's position ourselves well for any shape of recovery.
Thank you.
Our next question comes from Josh Spector of you'd be yes.
Yeah, Hi, good morning, Thanks for taking my question.
Free cash flow and the bridge you guys provided for 2020, where do you see the most flexibility and are you able to kind of quantify perhaps not much less you could have things get incrementally worse than your expectations right now.
Sure. Josh. This is current let me go ahead and take that we feel like we've been pretty transparent here, whereas our expected cash uses.
As we look and Simon it's just talked about working capital. We do think that there is upside.
To those numbers I, particularly if we see a sustained a contraction in demand we would expect a healthier a working capital relays capex or we can do a little bit more there and a and then there's always this other bucket.
Roughly 75 million, we think that there are real opportunities there.
Included in that number.
Our our pension as well as our joint venture cash tax thus far we haven't touched that and we think that a there could be opportunities within that bucket as well.
Okay. Thanks, that's helpful and just within performance additives and made a pretty significant pick up year over year talking about a million benefits and cost up program and you know volumes were down 4% or so year over year. Okay. Can you just bridge what the rest of the improvement was and if that is kinda sustain.
Double on when we get back to normal period or was there anything kind of went off or unique we should be considering.
Yeah look I think you know I'm a couple of comments around so for myself is very pleasing of course C.
The quarter.
It's a important to note that you know a strengthening the quotas driven mainly by cost as you say, we have to roll through an energy cost benefits there not functional additives business.
Some low Ashley and personnel costs in the first quarter.
Sequentially, we saw some seasonal increase in volumes on some price and a little bit of phone throw on cost. So you know underlying yet we still see some concern around a softer environment all those in coatings enough functional did business. We think that's gonna be some broad based drop off in second quarter across.
You know our construction activity in Ann Arbor timber business, thus far has been holding up holding up pretty well. So no you know how it's been a return to more traditional so level topline cost, but I think you should allow full you know a drop off which is quite broad based into stuck.
Cool stuff.
Okay. Thanks.
[laughter].
Our next question comes from Hassan Ahmed.
I live Nick Global.
Wanting Simon and correct.
Hi, good morning Hassan.
I Hope you guys, a well look you know I, obviously completely understand how unpredictable things all right now you know, particularly as one looks post acute to demand wise, but just you know I mean, I I think we're all sort of sitting here trying to read the tea leaves and and and and you know trying to see.
He as sort of different markets start opening up what sort of demand trends are evolving and and obviously you know the first market. We've seen beginning to open up is China. So what are the early signs that you are seeing demand wise or you know from the Chinese market you know as that has opened up.
Again, just trying to sort of so.
Thank you how weak would extrapolate died and gone to go but demand as well beyond just Q2.
Yeah. That's an interesting question Hassan on time, she wishes every holding up well decide.
What I would say to you as you know we participate in a very neat way in shock you know a window into China needs to be the market lace is somewhat limited I'm pleased told you. They in mind you know your comments.
Yeah, we maybe taking specialty products into Asia into China, we take some of the ER plastics products into China as well you know I think what we said on previous calls then we agree its right is that it's no surprise to people that in the sort of perella application the tech.
Style application as it were specialties, Bob I'll specialty business, we continue to see that you know some pretty heavy lifting and I'm not saying that you know we I'm not sure we're seeing any signs of recovery of any meaningful nature, So Oh Oh.
Plastics business in China, it's holding up pretty well and we feel pretty good about now in terms of extrapolation I have to say, it's quite a you know it would be quite a lead to extrapolate off what is very limited data or what I could say, though is that it is encouraging that we know the outlet selling you know obviously backwards.
Coatings and paints all beginning to be considered as some of the first in the in the release from locked down I'm generally speaking big ticket items like airplanes and an automotive vehicles.
Constitute a relatively small amount that's the global market for the titanium dioxide I would estimate around 8%. So you know I think those could be some of the lights to you know applications to chose to recover how's the trajectory Workstyle Hassan is really up for grabs you know, we've we've tried to be as clearance we could.
The for the second quarter, we are encouraged to see of course in our largest market of Europe that some of its opening up because being taken in contemplating and you know incremental steps I'm. We're encouraged by what we hear out of North America, you know either all through called with about a willingness to try and you know open up those policy economy the work.
Close down bear in mind somewhat so look I'm sorry to say two we it's been tough to give you a full read across but that's all data from China and that's what we've observed what are what I wouldn't say, though and multiple types of you know volatility challenge we've seen in this business over the year it can be the.
Case that recovery profiles can surprise I think that you know the bases have been specify S. Uniprise Cove, it with our inventory management and nice to be poised to work through all of the de stocking, but Oh, you know 12, 18 months and Oh I don't see any reason why dot com resume once we get through through the snack.
Typical site.
Understood understood and you don't moving onto the supply side of things you know obviously you guys have given your guidance in terms of sequential.
Demand declines.
Just wanted to figure out you know globally on the supply side of things.
Are you seeing an equivalent amount or sort of utilization rate cards, you know well be it from curtailments be it from.
Maybe potentially some blondes not coming online some blondes continuing to shut down some dawns, maybe even or some companies considering prominent truck fleet with some facilities. So how how you're thinking about the net down sort of sub Q2 supply picture. Because obviously you know beyond that a as you rightly said is a bit difficult to forecast.
Yeah, I mean, we we are contemplating a picture where all of our assets are running.
We don't contemplating closures of course, the time be some trimming because we're always going to ultimately much off production. So.
So demand of course, we have you know some flexibilities I've stepping up nicely shutdowns to consider we can move around and we have access to fill those scheme. So I think you know the when I'm thinking about production was not seen supply capacity across a very near its an exercise more of a tactical issue and I think it would remains to be seen certainly by us can't speak for.
Others are about what they might do strategically as it relates to capacity and but I think we're a little way for not because you know the patents. So murky just totally depends on how the demand patent plays out as to the answer that question.
Okay. Thanks, so much I mean.
Thanks <unk>.
Our next question comes from Vincent Andrews Morgan Stanley.
Hi, This is Steve hands on on for Vincent Thanks for the color on on the two or two Q volume declines, but just curious if you could put some context around what what maybe customer inventories level at levels, where a you know exiting the first quarter or you know to put some context around the 25.
The decline you're looking for sequentially.
Yeah, I mean, our judgment was from our own customers again, you're speaking only for Venezuela, all relationship with our customers. The engines inventories you know as you went through the first quarter were pretty pretty normalized onda, bozidar and I'm, the customers and and we're not overly hardly you know customers will have one.
Just to see you know as they crept into the pandemic a dynamic I'm sure. They would've wanted to make sure they had enough other products and they need.
So.
[laughter].
[laughter] effects.
Then you know the business, it's hard to say right now all I can say as the comment we made earlier, which was you know these past 18 months you know we've had so it's like a without sort of like wanting to be little or any of the old impacts of the medical disease. I mean, this industry faced a 25% Beast.
Talking six months in the back end of 2018, which was pretty awful and not dissimilar to the type of Piccs were thinking for this next second quarter. So you know I I think that we had worked their way through the inventory I'm not probably always we have put could be prepared to say at this point.
Okay. Thank you guys very helpful.
Our next question comes from Steve Byrne.
I think of America, let's say.
Hi, This is a bad on for Steve.
Apologies, we didn't kind of jumped on future calls, but I wanted to.
Ask your Capex decline is.
It's pretty large I'm, just kind of wondering on what opportunities are being pushed out or what your where you're concentrating your spending cuts I apologize if I if I Miss that earlier just wanted to clarify.
Yeah, I mean, I think it's true come it's no surprise that we've often said that out you know all kind of coal maintenance and E. H S. Band is is the heartland of about Capex exposure and I think the way to think about our current view we laid out for 2020 is pretty much in line with.
You know a maintenance NHS required capex spend view, we got to be very careful that we've done so convinced about equally or the situation demands prudence on the prudent or you know the he is too you know cut all other topics until we see which way you know.
Pandemic evolves, so I think it's pretty clear out for that.
[laughter].
Okay and.
No.
As it relates to.
Upstream wars, and I know that conversation was at around South Africa and cuts.
But.
You know demand has pulled back pretty substantially into Q, what needs to happen from your view or what could happen theoretically ticket to loosen that market up or do you see that as you know possible at all from a maybe give back on the a inflationary pressure that you've seen yep.
Pretty consistently over the past few years.
Well look you know I think that we have to be the castle here you know.
Don't forget to speculate what we could say as in previous.
Okay, because I've seen over the many years I've been in this industry that you know this demand destruction defense you know creates some sort of like well ultimately suppliers, including the all suppliers.
Feel the impacts somewhat later than we do.
You know quite often those supplies of running very expensive footprint type facilities, and how you know or potentially even have to face decisions about cutting production back dramatically rather than you know a in a much in that way.
You know there are quite often it's been the case that deal to being done.
To be able to for them to move ounces from us to receivable compared to input price.
I'm not trying to predict that's now so we're going to play out you know this time around a depends very much on on all cost, but we certainly believe a that will be negotiating hard for you to receive some price advantages in the as we go through this year on old count degrees of school material, including was.
And does that.
Just to sneak one more on the you comment about potentially seeing raw material Tailwinds relief for the years that primarily just given sulfate get back and doesn't really stake in any potential.
Softening at UBS.
Core outdoors.
No I mean, I think we'll all comments related to the overall raw materials Boston I mean, you know we have observed and then she coming down sulfuric acid another.
Rules coming down you know, we we've often mentioned the advanced king of cell site or indeed in the different feedstock root things Tom. So if we put what we know of you know one Q and she could you talk pricing dynamics together.
Trends.
I think we could see you know it is possible that the Shia when it's not guarantees speculate as to some extent, but we could be seeing its I wouldn't know rules in 2020 based on on the trends we see.
Thanks, I appreciate you let me sneak another one in there.
The problem [laughter].
Our next question pension, Jim Sheehan Suntrust Robinson Humphrey.
Good morning. This is Pete afternoon on for Jim.
Could you size about how much of it but you did not impact do you expect to see in T O chew up quarter over quarter basis, just kind of based on the 15% to 20% volume drop in all the other moving parts do you expect that margins will be stable. When he was I've done around that saying, 15% to 20% or is that a lot more volatile than that give them potentially some fixed cost absorption.
Yeah, why don't I go and take that since then as you know we we don't provide quantitative guidance and in fact, I think we'd give then more guidance here related to second quarter than a there than others.
Here and so we think that that ought to give you a picture as to what we're seeing a as it relates to orders that we had in April as well as the order book looking into May So no no no specific EBITDA guidance for you, but I will just remind you that.
We have indicated specifically on this call day, we have a unique set of assets, where as we moderate our facilities. We do have the ability to participate in furlough programs, such that we reduce or any effect that you would otherwise.
Spec from carrying and under absorption of fixed costs and so that is the unique nature that we believe we have a particularly as we participate in some of these countries in Europe, where we can access these government for low programs and.
Sad and so such that we aren't overburdened with fixed cost as we do moderate a facility and so we think that gives us a advantage or when we think about the any potential margin impact.
Here, particularly in the second quarter.
Yeah. Thanks, that's helpful and says a follow up given the current focus on preserving cash flow has there been any change to your long term goals or extending your production footprint to replace the capacity loss from Macquarie. It's either in the amount of capacity to be looking out over the timeframe.
Well, we believe we have ample capacity right now within the network of course, we are transitioning the final phase specialty product care, finishing product that we haven't pori or to the rest of the network.
In light of the coldest situation, we're taking a pause on that we want to make sure that we do so thoughtfully.
With that a final transition a and so as we develop and get a better picture as to what the demand is going to look like beyond just the second quarter I think we'll be able to calibrate around that.
Great. Thank you.
Thank you and my last question comes from Aaron just want a sign of RBC capital markets.
Hi, Thanks, good morning.
Oh, they're all doing wonderful or I guess I just wanted to ask about.
No the raw material environment again, or we've seen some major shifts here are not major shifts, but at least some some differences and en route house and a ilmenite and so on.
Have you guys been able to Ah I guess assess a if there's any opportunities within your business expand your sourcing of worse in different areas I'm, just curious what with the long term opportunity there is thanks.
No I think if we go back to 2011 and 12 when there was a you know some.
Let's call them, rather intense discussions between ourselves and all particularly feedstock supply.
You know, it's very clear that Ah you know by setting and talking through opportunities or you know you can get a situation of win win back at that time, we chose to invest significant capital resources in Ah, creating the flexibility to use different all types and different locations.
Oh, that's something while we don't regret doing now I would prefer not to do that we prefer to have a conversation with supplies are around that but of course ultimately that's kind of work for us too. So you know I think that are there opportunities that could be opportunities I see most of them are probably.
Being taken up ourselves so that all still some or you know the market as it both those about time and.
You know, it's very different but different feedstock group as well probably you know quite different to what it was about eight nine years ago. So you know I think there awesome opportunities maybe I'll be limited and you know we would certainly not hesitate said something Saddam should see you know the situation a warrant.
And then just from a customer standpoint, I guess it have you seen any willingness amongst your customer base to you accept or you know maybe some some different different types of T O two or whether it be a lower quality lower capacity I'm just curious just given a the financial.
Position, maybe if some of the smaller customers. Thanks.
Yeah, No I mean look that's not something that we are getting a hearing on it's not something that we favor.
You know we will.
You know focused on our strategy of a special isolation and differentiation I'm supposed to technical products and the value. There in that we think brings you know the most probably to our customers.
Thanks.
[noise] [laughter].
I'd like to turn the conference over to Salmon Turner for closing remarks.
Thank you very much a I'd like to summarize that close I would say by thanking you for your interest in Venice. So we are we're missing the a face to face engaging with fuel, which we enjoyed very much and we look forward to meeting again I'm not from a cost that doesn't mean, we're not available to speak the will of youth.
Throughout the quarter of a in the coming weeks and months. So please.
Please reach out to Jeff with any additional questions you might have and we will do our best to to give you a straight up sometime in the middle views from Bennettsville. Thank you very much of your interest in the company.
Thank you. Thank you, ladies and gentlemen, cliche teleconference. You may now disconnect.
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