Q4 2020 Olin Corp Earnings Call

Participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. Following today's brief opening comments, there will be and opportunity to ask questions and ask a question. You May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded.

And now I'd like to turn the conference over to Steve Keenan Olin's Director of Investor Relations. Please go ahead Steve.

Thank you Jason Good morning, everyone and thank you for joining us today.

Before we begin let me remind you that this discussion along with the associated slides and the question and answer session that follows will include statements regarding estimates or expectations of future performance.

Please note that these are forward looking statements and that actual results could differ materially from those projected.

Some of them and factors that could cause actual results to differ from our projections are described without limitation.

And the risk factors section of our most recent form 10-K.

The third quarter, 'twenty, and 'twenty form 10-Q, and and yesterday's fourth quarter earnings press release.

A copy of today's transcript and slides will be available on our website and the investor section under past events.

Our earnings press release, and other financial data and information are available under press releases.

With me this morning are Scott Sutton Olin CEO.

And Dawson President a proxy and international.

So I mean, Gopal president Chlor alkali products and vinyls.

From a bottleneck Olin.

And C O L and Todd Slater Olin's CFO.

Scott will begin with some brief remarks and thereafter, we'll be happy to take your questions.

I'll now turn the call over to Scott Scott.

Thanks, Steve and Hello to everyone like all kicked off my comments buffet and just how proud I am of our entire Olin team for bulky and traditional stay old paradigms are for.

Fourth quarter results demonstrate the team's resolve and leadership.

And when people are masters of the issue and we are prioritizing value first above all else across the entire ICU not just in one or two products that means we don't sell access and volumes into poor quality markets. Instead, we withdraw supply and.

We generate purposeful activations on both sides of the EC you up and down our derivative trades, resulting in margin improvements on both sides of the E. C U C.

Slide number 12 in the appendix demonstrates this activity and effect.

In fact, maybe the most important slot we have ever published is slide number 12.

Our model also reject the notion that this business must be deeply cyclical and we will always have its co products moving in opposite valued directions, thus generating mediocre EC you returns over the cycle.

It is not cyclical and is quite steady went olin does not push excess volume and chase the poor quality side of the EC you down a cross an inflection point on slide number 12 into an over supplied swamped for pricing.

Now turning your attention to slide number three Owens Corning E. C. You profit contribution Index chart.

Even though the global Chlor alkali market configuration is and the poorest state for Olin and.

In other words, when strong back integrated PVC production, which although it does not directly participate and pushes out lots of co produce caustic and two a week caustic demand environment.

Really the emphasis being on the weak caustic demand point here, we still sequentially lifted our E C U P C I.

And I lifting margins across chlorine EDC and virtually every cord and derivative, while simultaneously not allowing olin caustic to decline and price as much as industry indices would have anticipated.

The E C O P C. III shows our commitment to quality and our adjusted EBITDA improvement shows the result of that commitment.

I'll also comment here that our fourth quarter adjusted EBITDA result, as pure as there are no non recurring items included.

And speaking of quality and moving to slides four and five Winchester delivered the best quarterly performance and the business is 155 year history with even better quarters expected throughout 2021.

The Olin Winchester team relishes its commitment to support both the U S War fighter and the more than 55 million of us who enjoy shooting sports. These themes are woven into the fabric of America, and we expect that elevated shooting sport participation is here to stay.

U S military modernization initiatives are expected to create additional opportunities for Winchester as well.

Wrapping up my opening comments with slide number six.

Our first half quarterly average EBITDA should be better than the fourth quarter of 'twenty and 'twenty across every business note that we do have a number of turnarounds and the second quarter to contend with and.

And we expect a 10% improvement and the EC you PCI across the first half.

Here are some key points, specifically for the first quarter point.

Point number one the policy will be the star of the show and is expected to surpass our prior quarterly EBITDA record as the team lifts the permanent earnings foundation of that business to match the value of our product offerings.

Point number two.

Our merchant chlorine net backs go to a multiyear high following our fourth quarter Activations, which included shifting and additional 30 per cent of our ongoing business away from arbitrary external trade indices.

Point number three our broad productivity gains and start to show up as our fourth quarter project pipeline grew by 20%. We start 2021 with 633 active projects.

Please see slide number 15, and the appendix for some more detail on that.

<unk> number for the.

And the early redemption of $120 million of the high cost acquisition bonds. This month was funded 100% with cash from operations as was the additional $100 million of bonds repaid last October.

Through a combination of improved adjusted EBITDA disciplined capital spending and debt reduction we expect our net debt to adjusted EBITDA ratio to improve to roughly three times within the next 12 months.

So looking out just a bit beyond 2021, we have the team the skills the operating model and the assets, we need to achieve at least $1.5 billion and EBITDA. Additionally.

Additionally, we have adjusted down our forward annual capital spend requirements to around $200 million, reflecting a better match of our physical plant assets to our model.

This adjustment and in turn enhances our levered free cash flow and that cash flow inflection point should be clearly evident and 'twenty 'twenty one.

At the same time, we ranked one $5 billion and EBITDA Global E. C. You supply demand fundamentals are likely to be improved and Olin will expand our strategy to incorporate.

<unk> asset light structural moves to take us to the next higher EBITDA level.

As more molecules moved through our sphere of influence.

Those moves are likely to be just as disruptive to conventional paradigms as is our current model.

We will look forward to speaking with you and the future about the next day, but a tranche above $1 $5 billion and those supporting activities.

So that concludes my opening comments and so operator, we're now ready to take questions.

Thank you.

We will now begin the question and answer session to ask a question you May Press Star then one and you touched on phone and Youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

First question is from Mike <unk> from Barclays. Please go ahead.

Thank you guys and good morning.

Scott you've talked.

A bit about your new value first selling strategy for the past few quarters here I was hoping you could maybe give us an update on how your customers have broadly responded to this as well as perhaps and reactions you've seen and the market from your competitors and responses.

Yeah, Okay, Yeah, I mean, thanks, Thanks, a lot and Mike look I mean, we won't comment on competitor reactions and okay, but what I would say about customers.

Early this is this is challenging for them and we certainly understand that however, you know at the end of the day you know they recognize that we are a critical part of their future growth and they want us to be successful as well and that means we really do need to lift these materials up to.

Reinvestment economics, so yeah, it's been it's been challenging but it's been progressive.

And that's fair and then I appreciate a lot of your focus and comments.

And I'm kind of Poland and specific actions, but curious if you could just kind of walk through what you're seeing.

And your key product markets in terms of kind of demand recovery and maybe if you look across your portfolio, where you think the greatest pricing opportunity is today.

Yeah, I mean, I would just comment generally and then I'll ask Tommy and and path to make some comments here.

You know I wouldn't say debt.

General and industrial demand has still been fairly weak and that's going to play itself out and to our favor and in the future in specific areas. So it's been quite good so with that let me ask Pat from a policy to make a few comments and then we'll ask Tom.

And through the site and thinking about C. A T V.

Yeah, Mike This is Pat and I think on our part C. When you start out and you look at and the demand side of things.

You know, we've we've seen sequential improvement and our demand since June.

On line and certainly quarter on quarter.

And so the demand quite frankly, where we sit today and and you got to remember you know demand has really driven a lot around and industrial coatings.

Automotive electronics and.

When energy and quite frankly, we're back and a lot of those segments to pre COVID-19 demand levels and so we're sitting here, but Alice and February and and demand looks good. The other thing that's has been encouraging on demand.

And the fact that China has been very robust.

And I think the demand of the policy and China is probably as good as we've seen it for a while but you know my going back less than 24 months ago. When we had our investors day.

We were showing them that the overall industry supply demand fundamentals for Athene, Chlorohydrin, which is a major raw material going into making a policy, rather and along with epoxy resins.

You know, we're already and the mid Eighty's type op industry operating rates. So this is nothing new.

And it's just simply been the industry getting tighter and now coming out of Covid.

Yeah, we see things are very tight and it's given us a pricing traction that it started quite frankly back in September October and and has only built and momentum through the end of the year and we see that momentum continuing here at <unk> and the new year and yeah right through the right to the first quarter.

So there's increases out there that is public and the public domain and that had been announced.

And good traction on that and when we see the fundamentals very good.

And as Tommy.

And I think that here for the question when we look across the board and across the Cabby portfolio and tell you that you know as we look here in 'twenty. One we have a good upward momentum here on across the board and all our product groups. Obviously caustic is a big one and we look at it.

And he's starting to open up again manufacturing activity increased no pulp and paper activity, increasing some more alumina, although many of them by any external indicators that are poised to have a rebound in 'twenty one over 'twenty. So clearly politic. It is we see signs of caustic improving over the course of the year you look up on our <unk>.

And chlorine business, you look at titanium dioxide and.

The man.

And other things and other areas, we continue to see what we what exactly what Pat on his side, we see demand starting to you know it really started to come back and the second half and we continue to see that I will into 'twenty, one we see art chlorinated organics business, the ultrashort and rebounds with applications and the pharma water treatment for refrigerants.

I'll also co firing back on on on their cylinders and then lastly, with your bleach business continue at elevated levels for using a different items, but then you start getting into second quarter and the seasonal demand and so really and in summary, I can tell you that you know our view right now is that looking.

Looking ahead, the demand looks very good for for both sides of the C U E.

For our for our portfolio.

Great. Thank you.

The next question is from Kevin Mccarthy from vertical Research partners. Please go ahead.

Yes, good morning.

Couple of questions on Winchester.

What is your <unk>.

Expected contribution from the various price increases.

And that are flowing through your business and 2021, and then secondly, you know if we look at history oftentimes the year following and election.

Is such that you know demand sort of softened relative to.

And the election year itself, where there's a lot of strains and based on your commentary. It sounds like your outlook is a is very positive. So I was wondering if you could address each of those two things and and help us to put it into context with regard to your outlook.

Yeah, I mean sure Kevin and I mean, just for you know the general statement is that you know with Winchester results were going to continue to improve and continue to improve throughout 'twenty and 'twenty one.

The price seem right without an absolute number.

And we've put pricing and achieve basically and 100 percentage on that pricing on at least for occasions over the last six months or so so and in terms of the profit improvement that you see in that business, it's probably the leading driving factor and then for.

Back then we also have you know white city as part of our portfolio is also another leading driving factor and <unk>.

Terms of election, and looking out I mean really the fundamentals have shifted for that business, which is different than it's ever been before I mean shooting participation.

Is way up and we expect that to continue as a long term trend. So you don't my point here is this is not just for 'twenty and 'twenty. One phenomenon you know, we expect that business to do much better throughout a number of future future years.

Okay. That's that's helpful. Scott and then a second question if I may on E Hoxie.

You know clearly, there's a tremendous amount of pricing strength in recent months and and I was wondering if you could help us understand.

How much of that is due to olin's change and strategy you know around the E. C. You profit contribution index relative to our ex.

And as market dynamics, such as you know various competitor outages and Asia and any color around that would be really appreciate it yeah.

Yeah, I mean, I think Pat will provide some color here.

I would just preface it by Eisai and and our park sheet business and it certainly is part of.

Of our strategy.

And you know first and foremost lift value across the whole E. C. U first and Apache sees a significant part of that but then a pox. He has its own landscape fundamentals that pad is exercising a lot of activities around so Pat yeah Kevin.

Yeah, I would I would say first of all you know, we're very active around upgrading where we decided to place a proxy resin and yard targeted applications and customers around the globe that you know to drive the best returns for the EC is as you know I think a little bit of a different mindset changes there.

And I've got to compete and make sure that that can get enough chlorine to put into the epoxy chain and.

And so if I'm not improving my returns and the ETE and here internally.

And we'll take that easy for you and places somewhere else.

So that that's a different and that's a different that's a different perspective and a different color on our sense of urgency and.

The sharpness of which we evaluate where we're gonna placed at a pace you know I can say and to our targeted applications also Kevin you know, we we've talked a number of times about about the fundamentals of Epocrates and the fundamentals of epichlorohydrin, which as you know a key raw material.

And since the reinvestment economics, havent been there and the industry for etsy or a lot of the base liquid epoxy resin business there hasn't been any capacity added. So you know if if you work off of this you know discussion we had less than 24 months ago and at the investors presentation and I. Thank you.

We're seeing the normal occurrence of a market that hasn't been.

Invested in and the additional capacity standpoint, and I think the other thing you know, Kevin and you're seeing a little bit more color around China, and if you record a few years ago. You know they were really cracking down hard on environmental regulations enforcing those regulations are.

Which I think was great I mean, I think that was good for the industry. It's good for China, and I think that took some capacity out there that may have not been so transparent and that's what yeah. That's why you had probably the longest running arbitrage and they've never seen on the price of L. A R and China versus a L a or outside of China that it gets maybe a little color.

And what's going on here.

Thanks for that and congrats on being the star of the show.

[laughter], yeah, and it feels great.

He shakes out.

[laughter].

And the next question is from Hassan Ahmed from <unk>.

And I'll I'll medic global please go ahead.

Morning, Scott.

Scott and I got a day could look at and.

Some of the commentary and near term ways that you've given and sort of compare and contrast that with the.

The full year 'twenty 'twenty, one guidance that you had given me and I'll call. It in early November it seems that things have certainly improved a fair bit since then and you know as I take a look at the guidance you gave you know it was.

$860 million on the low and 1.6 billion on the high and and and you know we're already at a run rate.

It's a you know a billion annualized and EBITDA.

I was just wondering whether.

And you know you'd sort of update that guidance in light of some of these are sort of improvements that we've seen through the course of Q4 and some of the early indications that we are seeing both.

You know a certain degree of strength in 'twenty and 'twenty one.

Yeah, Yeah. Thanks, a lot for us on I mean, I mean, I would say debt. We really are updating that guidance here and we've tried to be really clear that first quarter. Your average for first half continues to do better and certainly the full year.

The reason that we're updating that guidance. Some is because you know our model and just a joke.

To restate it principally and says that look our market participation.

<unk> set out a week five of the easy for you.

Translation is that we don't sell and a poor quality markets and we do activations up and down our and chain on both sides of easy you and you know if you ever did had a chance to look at and slide number 12, and just says we move our business from the green points to the Blue.

And points by running and in that way. So I guess my and my point is were having success in and doing that and you know there's still a lot of things that we can do to take off some of the handcuffs that we have and we see as C. R.

Our sales being more successful with doing that throughout 2021. So that's the reason that we've updated our guidance.

Very helpful and as a follow up you know really appreciate you know state 15, where are you know obviously, you're talking about a sort of all the 600 active projects that you guys have started and 'twenty 'twenty one.

You know and as I was going sort of down the list of projects that you guys mentioned, you know a series of sort of capacity closures and the lake, but you know I sort of thinking about what if these projects and know how.

How are you thinking about sort of you know potentially certain asset sales as well.

Well I would say and in terms of asset sales Ryan that's not necessarily part of our near term agenda, where you know more concerned with immediate productivity and better cost performance and we can get from Axa.

Closing some assets and are underutilized, but I do think Jim could probably provide some good color on the overall productivity program and how that is evolving.

Sure.

I saw and one.

One of the things that we are important pillar, obviously of our success here is productivity we're.

And we're talking about $50 million to $100 million and net savings for 2021, and this is the epitome of controlling our own destiny. This if this is something that we absolutely can control is our own costs and their own our own productivity. So we've been very active and we.

<unk> stepped up our activity and the fourth for where we increased our project portfolio by 20% during the fourth quarter. We completed a large number of products over 900 projects for them for the year that actually work into our base line cost for 'twenty and 'twenty, one and then of course, we're being aggressive with its over 600.

Projects as we start the first quarter of this year and so we're really making a concerted effort to control what we control on the cost side and help open up the margins as we're successful on the commercial side and you can see the variety of projects. This is a broad based growth.

This is a very broad based program its virtually in every aspect of our company whether it would be structural with asset closures that like you see on the list or whether it's raw materials or a railcar management or sales tax for association across every single element of the company.

Every person and the company is responsible for productivity and that's really what where we're stepping up and on the on the structural side you know with some of these closures you know you'll see the VDC and overlap closure and our our acu.

You plant closure, that's going to happen and the second quarter that we're moving forward with some of the things that we're doing on the structural side and of course, we're going to continue to look at our capacity and the easy capacity, that's underutilized and we're going to continue to scrutinize that and as you can see we've made decisions and the pass and we will make decisions here and the seat.

Sure.

Very helpful. Thank you so much for it.

The next question is from Alex He has removed from Keybanc. Please go ahead.

And thank you and good morning, everyone. Scott you mentioned, a 10% improvement and the PCI and the per.

And what's happened if I understood. It correctly, how should we think about you know Mars and some back should we just take it down.

Sales and the Chlor alkali and epoxy segment, you know and.

And assume a 10% margin on that.

Yeah, Hey, Alex Thanks, I mean, that's that's a good question right I mean, we we've set the CCU PCI as you know not only the number one indicator of our success, but our commitment to our play and so if you think back to what I said on the third quarter earnings call.

And I think that E. C U P. C. III represents about 75 percentage.

The business that this company and so it's really only excluding our Winchester business and excluding our aromatics business right. So you can imagine you know and just as a rule of thumb without having an exact math formula that you can take 75 per cent of our revenue.

And then think about what our contribution margins for our variable margins might be and then you get to a 10% improvement and the E. C. U P C I and over the first half, so and and averages some amount a little less than jet per cent.

And that should be a significant chunk of improvement that happens through our profitability through the first half of this year.

And thank you Scott and that is relative to what basis fourth quarter or back half of 'twenty.

I'm, sorry, and that won't be a 10% improvement and it from where we finished the fourth quarter adds.

Understood. Thank you and and then.

You also mentioned the one 5 billion.

EBITDA level is that something that you see as sort of near term target, but not 'twenty and 'twenty, one or something like that.

And it could be cheap in 'twenty and 'twenty one already.

That wasn't our our 'twenty and 'twenty, one targets, but that comes along and really not too far after that and you know there for that was saw and my comments around and we're really looking forward to talking about what happens you know and beyond that as well, but it's a little bit out for 'twenty and 'twenty one.

And then last question if I may.

And that was expansion and it looks like and it includes V C.

Capacity growth in excess of therapy, you see growth you you you have a contract was selling D C and to this company. How protected are you within your contract is fintech obligated to buy.

Volume from you and and for how long.

Yeah, and so I, probably won't comment directly on the very specifics for that but what I would say in general is.

And you know expansions like this and particularly this one and they're really expected and need and especially in this timeframe right. Three three years away. So you know that that's because of demand growing on both sides of the E C U and we started with.

Don't expect any negative impacts out of that you know and all of that is planned for.

Thank you Scott.

The next question is from Mike Sison from Wells Fargo. Please go ahead.

Yeah.

Hey, guys.

Really nice results there.

Scott and just just out of curiosity when and when you think about the third quarter E. C. U 99.6, and then the one O six point too.

That was really you guys.

Making the changes and then you know obviously when you look at the consultants index as the E. C. You went out and so I'm just trying to understand you know how much of that and maybe all of it and potentially was what you got what you've done so far.

Yeah, Thanks, a lot and Mike Thanks for the question and and Yeah. I mean, we're all very focused on controlling our own destiny and if you think about the way, we're operating and May certainly be disruptive compared to you know what has happened.

And in the past.

Certainly you know we've driven our own results are true to this point and when you're acting in that manner I think opportunities present themselves that otherwise may not have come up in other words, you know about those bows.

Happening before that we didn't turn into opportunities get turned into opportunities and the way to think about this business because there's so many different markets. It's co production. We have derivative change change is that there's opportunities that come up every day.

Regardless of whether and one product area, you know demand characteristics for our improving or declining and now we're positioned to take advantage of those all the way up.

And on the way down.

Got it and then and.

And just a follow up on and on Winchester and.

And I've been to Cabela's or thoughts you can't really find Winchester and <unk> and.

And our anybody's ammo for what it's worth so [laughter].

And I are you looking to expand capacity and then you know when you look at the pricing at the retail stores and three ex November maybe forex and in some cases.

And you know I.

Are you locked in those type of prices for this year and maybe just a quick reminder of how much is commercial and law enforcement that way and southern.

Understand the mix there.

Yeah sure.

And Mike I kind of just part and the back end of that and if you think about the mix of the business. It's just not that far from being 50% military and 50% commercial with some law enforcement mixed and that was a really really rough rough numbers.

So you know in terms of capacity I mean, we just of course acquired a lot of capacity and the Lake City operations, but we continued to run at that hard and instead of expanding capacity and what we are doing is looking to optimize that.

<unk>, so that we do the right things for unit margin in terms of whether where we're locked into a lot of times, our government business. Our military business is more steady, but commercially even over the last six months and theres been starting with three or four.

Nice increases until we have the ability to change price as we need to change price. In fact, we have a February price increase and it's on the table right now and it really impacts nearly all of our commercial business for a lot of it anyway.

Great. Thank you.

The next question is from Frank Mitsch from for Me I'm Research. Please go ahead.

Thank you so much nicer and for the year and it and if I could translate mikes question. He was really asking you guys and ship them a couple of boxes.

And that was the Genesis was.

What's for his question, but if I could stay on Winchester and you know.

Obviously very impressive 45 million of EBITDA.

How do we think about the contribution from Lake City.

This is our heritage.

And Chester right and you know, we would've modeled and something like I don't know 12 million or to maybe $15 million at most for Lake City and the corner. So I was just trying to trying to understand how that how that played out how do you think that's going to continue to play out.

Sure Hi, Mike Yeah.

Look I mean, our our improvement was due principally to two things and Youre right. One of them is like city and the other one was certainly you know better commercial performance and productivity performance across Winchester. So you can sort of think of those two things as share.

And that's bad improvement to get to that 45 number and we're going to continue to build on both of those white city it'll be better than we said, but it will really be because of our team's actions. Once we have lake city and some of that 45.

And that you referenced really becomes the low quarter and the next five quarters.

Wow.

And it's very very very helpful. Thank you so much.

And if and if I could just ask a question on a on a clock line side, you know given the fact that youre not selling used to poor quality markets and indicated and the release that your volumes and Chlor alkali were lower year over year. I was wondering if you might be able to quantify what it was at low single digits mid single digits down double digits.

Sequentially or year over year, or however, you want to handle it such that we have and appreciation for how much is that business is benefiting from the debt.

PCI versus the volume side of the equation there.

Yeah, that's right and maybe Tommy and I'll answer this question and I'm sure Frank talk to you, but I would say that when we look at it if you look at our performance over the back out for the year the contribution from a PCI and more than more than outweigh.

And any any headwinds from lower volumes or cost though.

And next to Pat and Jim Here, you know, we're working very closely together the productivity gains that Jim has done.

And has led the way it really creates a lot of air cover for for the commercial organization to go out and put you know value over volume at risk knowing that you know we're constantly and deliberately.

Working down our cost out.

And then if we look at our our Activations.

As Scott mentioned, let.

Let me just give you a few data points here.

Purposely and Q4 against the weak cockpit market, we place less caustic soda then we otherwise maybe had the ability to do and so we purposely kept and caustic soda also for our our participation. We did the same thing with EDC as well you know, we make EDC and conjunction liberating.

Soda Olin.

Caustic soda is weak and that means that we're gonna play to that week side that also means we're going to limit our ADC and.

And we see there are built our our demand for you see that for more than outweighed our desire to supply and.

We were purposeful and activating around there and you're looking to achieve ever increasing values on EDC same goes for our bleach business, where we are now many of you know several off season price increases and bleach and Q4 and and we achieve those and we've negotiated a higher value contract for us for the total.

You have 2021, you did that and juice and our GTO business, and we announced price increases and Q4 again strong volume purposely held from volume back as well their activate around that and and getting cases, when we were the only ones with a price increase on the table, we achieved the price increase and got the volume so very purposeful setup.

And working through our cost and but being very much you know and charge of our own destiny as it relates to being willing to put develop the value over volume I think our fourth quarter results show that that model has been very good and positive returns.

Frank very friendly and kind of.

You should think of that price is at least you know three or four times, depending on what comparison you want.

Penalty associated with volume again, it is much more about margin and.

But then the issue on volume well outweighs that.

Got you very helpful. Thank you so much.

The next question is from Vincent Anderson from Stifel. Please go ahead.

Yeah, Thanks, and good morning, everyone.

And you talked about a box of having to compete for for chlorine internally.

Which is interesting I don't normally think of those as an asset light business and so without seeing anything specific to a pox. He highlighted on slide 15, and I was just interested in getting some color in terms of how much more fixed costs do you feel like you can get out of those to facilitate the kind of flexibility you were talking about.

Yeah, I mean, thanks, Thanks, a lot I'll just take a quick quick shot at cash I mean look we we have room out of the company to tight fixed cost and that's pretty widespread and what we haven't really tried to do at least for external purposes, just to narrow that down to business.

And I business I I would just sort of you know clothes that point by saying look we're going to get $150 million to $200 million of gross productivity, which translates into that net 50 to 100 and there's opportunities across all the businesses to do that.

Okay. That's helpful. Thanks, and then.

Yes, Scott you teased out some asset light moves I think you've called them debt, if I'm interpreting it correctly it could shift the portfolio a little bit.

You know with the improvement and base free cash flow going forward really starting now and are there any areas and chlorine derivatives, where maybe some small acquisitions could have an outsized impact on EDC you optimization.

Yeah, Yeah. The answer is yes, I mean, it's it's not and it's not impossible of course, our principal strategy you know when we get about $1.5 billion for dividend will be will be to get more molecules underneath our umbrella and you know what that might be.

Me and just sort of as a teaser for the future a little bit Ryan it all and it'll it won't be just trading activities. It won't be just production activities, either and it won't be just marketing activities, either it's going to be more and.

And any of those put together and it's probably going to be something the industry has never never seen before and.

And may be disruptive and just like our model is disruptive to conventional thinking right right now.

Okay.

And have to think about there and I appreciate it.

Okay.

The next question is from Neel Kumar from Morgan Stanley. Please go ahead.

Hi, Thanks for taking my question and.

In terms of the $1 $5 billion and EBITDA.

I know you mentioned and non a 'twenty 'twenty one target, but can you just provide how many years out that could be and turnkey attainable goal and.

Can you just talk about what are some of the underlying assumption means to get there and how much of the increases I mean, eurocontrol versus perhaps being more and market driven.

Yeah, Yeah. Thanks, a lot Neil Yeah, I mean, and it is you know took two or three years out right and we haven't put a specific timeline on that but I think the more interesting answer to your question is that we have everything that we need to get a to get to that.

Number so it really is all about you know executing just differentiated model across the company. So we don't need anything else and that's also why we could run you know $200 million of capital for many years and fat.

And to be able to support our business model.

Okay, that's very helpful and and then just for chlorine and understood.

And up to $200 per ton out there and from the pricing features.

Can you just give them the same for talent and coring and portfolio has seen that price increase.

And then it seems that IHS and the only and recognize a portion of those increases and why do you think that's all been recognized so far.

Yeah, well I would just say you know that debt.

We can't answer why I, just you know didn't didn't see them you know probably a good question for for IBM actually part for us.

As you know, we are still and wrapping ourselves from certain commitments that we have to follow them follow through on so in terms of merchant chlorine. We still have it may be you know the minority, but a minority role we share that we can.

Instantly change price on and we're working to improve that.

Okay.

Yeah.

The next question is from Matthew Blair from Tudor Pickering Holt. Please go ahead.

Hey, good morning, I and a few questions on the park C suites, and propylene and benzene costs move up quite a bit in January of course early our price and most of the store at about 27 cents and could you just walk through the moving parts here and and all things equal would you expect to see unit margin profitability increase and epoxy.

And in Q4 versus Q1 versus Q4.

And so I think.

And Pat will give you a little color on that and they'll probably just just sort of tied to the Chinese and get to the back and answer all of that and without too many moving parts.

Yeah, Matthew and short answer is yes, we are going to expand margin and Q1 versus Q4.

And our guidance.

And that's a short answer.

Sounds good and and Pat you previously touched on our strong demand and markets and epoxy like wind and and autos I think the price gains are just pretty remarkable given the aerospace is likely still a big drag. So could you talk about you know how much of a headwind as the aerospace today and and I guess, how much upside down the road it would present.

And if aerospace and normalized.

Well you know Matthew I think he asked also so our oil and gas into that the aerospace as well. So you know while we have seen that recovery that I talked about and our demand.

And I mentioned earlier, which we're pretty much back to where we were last year at this time without aerospace to your point and without oil and gas and also without the full.

For a recovery and in a lot of industrial coatings and so you know you guys cover all the big Tony houses and so I think theres more and more upside here to the demand and the other point I didn't mention is that.

We really saw a lot of customers and their customers' customers take inventories down really to low levels at the end of last year, which is not uncommon but.

But we think inventories are at pretty low levels here going into the new year as well I think that bodes well for ongoing yeah traction that we have seen late last year and that we're seeing here in Q1.

Great. Thank you.

The next question is from Eric Petrie from Citi. Please go ahead.

Hey, good morning, Scott.

Mark appreciate it appreciate.

Appreciate the comment on the 30% and merchant chlorine and transitioning away from index.

Could you quantify it at all for the rest of the portfolio and excluding classic sort of how that traction and made progress and the euro.

Yeah, Tommy and do you want to comment on that yeah. So good morning, Eric Yeah. We continue on a very deliberate approach here that you know in terms of you know are looking for a contract openers canceling, you'll evergreen contracts pulling and contract renegotiations forward, both across you know chlorine and caustic soda.

And to move away from these you know arbitrary sometimes they'll take third party indices and moving towards something that puts you know or could control and our own destiny and so we fully expect to continue to move along that we achieved.

Every new contract moves us closer and closer to that goal that that Scott has outlined and we havent cheap debt you know everything that we that we will open and we were able to open and and and negotiate and and contracts here and the second half of the year across all of our molecules we achieve that so much.

More to come here, but where but you know we're very active on that front.

Okay and for my Followup U S Gulf Coast EDC prices.

And it doubled to $600 per ton.

Oh and running.

Running full out or not because of lower caustic net backs and then are there and you know other chlorine derivatives that are ripe for the bottleneck and capacity yeah.

Yeah, Yeah, and and so and this is this is Scott I mean, what what I, what I would say is that you know and you'd have to think about how we're running and our model and you know and we said, we're not going to sell and a poor quality and markets and therefore, we're not selling so much into the caustic world right now because of these things or Coproduce, we'd go back.

And look at chlorine and and basically that says we're not selling as much coring and to certain markets and that means every derivative has to compete clearly E. D. C is becoming more competitive for that that that corrine, but I just don't want to walk away from from.

This Q&A and people think that we're running assets are for where we are because we're not at the moment those are running more than maybe some other derivative assets might be.

Paul connected together.

The next question is from Jeff Zekauskas from J P. Morgan. Please go ahead.

And.

Your operating cash flow.

And in the quarter.

And pressured.

And your you really lifted your accounts payable.

For assisted things can you talk about some of your operating cash flow dynamics.

And what do you want to take it.

Yes, Jeff consistent with what we have said throughout the year and and the and our call in early November and we said we were ultimately going to reduce working capital by around $150 million and that'd be at 141 million and.

It's hard to predict the exact timing of tax refunds, otherwise, we and hit it remember that does include funding $67 million and working capital for Lake City. So we had purposeful activations on our entire working capital front.

And what the achievement occurred was what we expected.

Okay, great. Thank you very much.

The next question is from Steve Byrne from Bank of America. Please go ahead.

Yes. Thank you you've mentioned you have underutilized VCU capacity.

And then it's under review.

I'm concerned and my question is really about what are the options you're considering is it likely that you'll you'll shuttered capacity and and and keep it.

Yeah, so to speak warm until demand warrants, bringing it back on stream.

Or have you have you looked at the technical feasibility of retrofitting electrolyze to instead.

Instead of.

Using a salt brine freshwater.

Fresh water and produce hydrogen once you use and lithium chloride brine and produce lithium chloride and and Cory and his have you looked at those options and it's an alternative.

Yeah, Hi, Hi, Steve.

The option, we're looking at and you know I think highly likely is a permanent shut down of some E. C. U production capability just like the other shutdowns that were doing are all permanent shutdowns and with regard to your other quest.

I mean, we just have so much more valued and deliver and where and in.

In terms of our current businesses and you know the answer to your question. There's no. We're not looking at any kind of changes and and chemistry at the moment.

Yeah.

Okay.

I don't know $10 a kilo for.

Hydrogen seems like a pretty high value option, but I.

And I did want to drill into your productivity initiatives and is this a program.

The debt you've.

Modified since coming on board Scott.

And can you comment on the 600 projects that you have underway how would you characterize it.

How much of that this is kind of top down versus bottom up.

And and if it's coming you know from you know from you know broadly within the employee base.

And what is your approach to incentivizing.

And all and employees to contribute to this pool of productivity ideas.

Well look I I would just say that no. It's it's it's not me it's.

For a team doing this and as far as how the team is doing that Jim and Jim did I answer and just a minute you know what may happen and to answer to the question is why the employees would be incentivized.

To do this is basically because they love Olin and want to see Oh, and be really successful and and our future and like I said in my opening and I mean I'm just so proud of this broad and her team for really jumping in and and originating range. Jeff do you want to add anything yeah, what I'll add is that what we really do.

And as we've broadened out the program and intensified the program.

And so we've known we've had productivity and the past, but now it's where we're literally driving it down to every employee. So you know on a weekly basis for instance, at and and at the end of a particular week or a shift some of the folks that are actually operating the plants will get together and say what did we learn this week and what do we think that we can do better so.

And and lower costs, So and then they take those ideas and we actually follow up on those so that's an example of the kind of thing that even every operator of a plant on the shift or what we're doing it doesn't matter, whether we're closing the books or any price out from the company, we evaluate on a regular basis, what isn't being done well what did we see that could be done better or save.

Money and and we actually put it into a project and we follow up on it and so it's a grassroots all employees based type of program and then we elevate them up and we follow through on the projects.

Very good thank you.

The next question is from John Roberts from UBS. Please go ahead.

Thank you Scott.

Scott hold and acquired K a steel.

Long time ago, as a way to get control of more caustic molecules.

And example of the type of things that you're thinking about I know you're thinking about other things and addition to debt.

That's not the kind of thing you're thinking about in terms of controlling more molecules.

Yeah. Thanks, John right I mean, I would just say that that that could be and an example, right. It would be one and two you know all of that I think there's a lot of ways to have more molecules flowing through our sphere of influence and doing complete acquisition.

And so that's you know probably and this industry and has it seen them added together right and I've seen one by one but in terms of you know and uniqueness D and set up around a model where and when you go out and do that which will drive growth for many years to come for for all.

And it'll probably be a bit more sophisticated and one on one stops.

And then secondly sequentially from third quarter to fourth quarter. Your E. C. U index moved up about 6% and your EBITDA and relatively stable volume moved up about 13% for the segment is that about the right and leverage and we should think about kind of a two to one moving to.

EBITDA versus the index.

Yeah, I mean, it's it's Pablo.

Level, we're at right now and it's probably it's probably okay. I mean, you know as a rule of thumb clearly theres a lot of other things at play in terms of productivity and turnarounds and all of those banks, but you know, it's it's certainly indicative.

Yeah.

Thank you.

Okay.

The next question is from Arun Viswanathan from RBC capital markets. Please go ahead.

Great. Thanks, Good morning, Congratulations on all the progress here and I guess I just wanted to ask.

And the progress question, a little differently. So last quarter, you laid out a $50 million to $200 million bucket for and optimizing.

Optimizing the issue value.

Are you do you feel like you've you've achieved maybe the midpoint of that on a quarterly run rate basis and at this point or are you leaning towards the upper end.

And then secondly, and when you think about the move from 250 million to 375 million and say on a quarterly run rate basis of EBITDA.

Where do you where do you feel like you achieved that $3 75 is it maybe exiting.

Q4, 'twenty, one and I know that you're not achieving the full one five and in 'twenty, one, but do you think you can get to the run rate of that maybe and a late 'twenty one early 'twenty two.

Well I think he and the answer was the first part of the question is that that's a little bit of why we're showing a bias to increase what we're forecasting for next year's debt we are leaning.

And the midpoint of that bucket that you referred to can you restate used the number of 375 I don't I'm not sure what that number and so I kind of missed and can you restate what you were asking.

Well I was just and you know.

Implying that if if you're if you say $1 5 billion on a annual run rate EBITDA basis, maybe that's $3 75, a quarter or slightly above that.

That's what I was referring to yeah, yeah, Okay, Yeah, I mean and.

Of course, as probably you know two to three years out where we get to that that kind of run.

Run rate consistently and I mean are we going to have to reach a point, where we touch and a 300, you know to demonstrate and we have the capability sooner than that I think we will.

Okay, Great and then just just lastly on and leverage our you know theres a target to get to a three years or so and.

And by the end of next year.

Hum.

Beyond that I mean, do you feel like that's the right level for you guys to remain at or would you see eat going even lower and and if you remain there and how do you see and you know priorities of cash, yes, ex yeah and that part do you want to answer that yes, sure Arun, Yeah, where we're targeting to be and that.

And three times range and you know within the next 12 months clearly you know from the lever you know from Oh, Levered free cash flow of two and a half to three and a half cents a share we've talked about you know that'll help us and you know.

And to use that cash to continue to pay the dividend and to reduce debt, we just paid $120 million and Jan This January.

The next target of debt that we have and as the $500 million of debt.

10 per cent bond is due in 'twenty and 'twenty five.

And targeting and they're trying to pay those off fully in 2021.

So you know that that's where we're headed and and as we move beyond 'twenty 'twenty. One clearly we would like to see debt come down a little bit and then we have opportunities for cash and as we continue to generate.

Thanks.

The next question is from Travis Edwards from Goldman Sachs. Please go ahead.

Hey, there and thanks for the time and appreciate the color on the business and maybe it's callable and at the capital allocation side and I guess, maybe at the risk of some cross and I said from last quarter, but I'm just.

Just on those 'twenty 'twenty fives, I think you've been clear and have proven that we know what the free cash flow and you are allocating towards debt reduction and I'm, taking up the 20 threes I was just wondering is there anything as far as sort of market environment credit market support that would and <unk>.

Change, how youre thinking about allocating that cash flow not necessarily towards debt reduction, but maybe coming to market instead with your debt trading and the four per cent range and there's the coupon on those me and you know.

10 per cent anything that could I guess is there anything and the environment and could change that would.

We help you rethink or lead you to rethink how you're how you would address that debt.

And we obviously always look for opportunities to be mindful of ways to reduce our interest cost.

However, we also balance that with the amount of free cash flow that all and generates and we need pre payable debt. So clearly we are targeting are prepaying debt $500 million <unk> 10 per cent bonds if possible this year.

And just to just to add on that Todd you're exactly right. I mean, we're we're going to go after that $500 million debt. This year, a large part of that certainly tonnage from our operating cash flow and then you know and do some clever things to get the rest of it.

Got it appreciate the time.

The next question is from Roger Spitz from Bank of America. Please go ahead.

Thank you and good morning.

For 'twenty, and 'twenty, one and working capital and.

And you said this earlier do you expect that to be a source of use of cash and two to what extent.

Yeah, I'll, just quickly and answer and I mean, where we're going to use a little bit of cash for.

For some working capital and that's all factored into it when we say, we're gonna and you know get Levered free cash flow and $2.50 per share and a $3.50 a share that's all factored into it it'll be a slight use of cash and 'twenty 'twenty 'twenty one.

Perfect and and.

I'm wondering back on the taxes.

John.

What the heck out of kind of sports and for sure in Europe.

Is that driving a spike and and this.

E L E R.

And <unk> versus say, the you know, perhaps less Chinese import pressure into Europe and it goes up.

You know a stronger demand in China and.

And the stronger demand overall, thank you.

Yeah. Roger this is Pat and I would say that debt at a force majeure that you referenced is more of a minor issue.

Third at the bakery issues I mentioned earlier around overall demand and demand out of China.

Thanks, very much got pushed from yup.

Yup.

And as there are no further questions. This concludes our question and answer session I'd like to turn the conference back over to Scott Sutton for closing comments.

Yeah. Thanks, I mean, I've talked from closing I'd, just like to say that Olin is going to continue to win our way to a different valuation, which one which means we really have to list all and people hard and you know you might be interested to know that we also host internal progress calls each quarter.

But you've seen our own internal analyst and it's slightly off cycle with this call, but if we can call them something different we call them lifting calls and we have three lifting business units and the leaders of those business units report and our engagement and drive our initiatives and progress.

Similar to what I do hear on earnings calls. So we will look forward to discussing that topic more with you on future calls as well. So thanks, a lot for joining us Tonight.

Yeah.

Thank you for attending today's presentation you may now disconnect.

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Uh huh.

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