Q4 2020 Chemours Co Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Tomorrow's Company fourth quarter and full year 2000, and 'twenty earnings Conference call.
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I would now like to hand, the conference over to your first speaker today, Jonathan Lock Vice President corporate development and Investor Relations. Please go ahead Mr. Locke.
Good morning, and welcome to the <unk> company's fourth quarter and full year 2020 earnings Conference call I'm joined today by Mark Fernando President and Chief Executive Officer, Mark Newman, Senior Vice President and Chief operating Officer, and Sameer, <unk> Senior Vice President and Chief Financial Officer.
Before we start I'd like to remind you that comments made on this call as well as supplemental information provided in our presentation and on our website contain forward looking statements that involve risks and uncertainties, including the impact of COVID-19 on our business and the operation.
And the other risks and uncertainties described and the documents can Morris Thats filed with the SEC.
These forward looking statements are not guarantees of future performance and are based on certain assumptions and expectations of future events that may not be realized.
Actual results may differ and <unk> undertakes no duty to update any forward looking statements as a result of future developments or new information.
During the course of this call management will refer to certain non-GAAP financial measures that we believe are useful to investors evaluating the company's performance.
A reconciliation of non-GAAP terms and adjustments are included in our release and at the end of this presentation.
With that I'll turn the call over to our CEO, Mark Rourke, Dano, who will review the highlights from the fourth quarter and full year 2020, Mark.
Thank you Jonathan and thank you everyone for joining us. This morning I'll begin my remarks on chart three.
The resilience of <unk> is put on full display and 2020 as we raise to meet each challenge the year threw at US I was reminded time and time again of just how strong and determined and the people of this company are from COVID-19 of social Justice. So political polarization of 2020 was full of events.
The tour at the very fabric of society.
Through it all of this team stayed focus on our true north and the safety of our people and their families our customers and the communities and which we operate in.
And the and we delivered another year of solid results reflective of that unity of purpose.
And I'd like to take a moment to thank the entire <unk> team for their commitment over the last year.
And with the reminder, that our efforts must continue.
We forge ahead in 2021 with the same resolve determination and energy we have taken the every challenge as team to Moore's law.
Looking back on 2020, our COVID-19 response, the early told him to the company.
As you've heard me say and the last few calls we focused on three key areas.
One putting and our employees customers and communities first two maintaining a strong balance sheet and liquidity position and three focusing on cash generation and 2020.
And the team executed exceptionally here and I can certainly say the urgency and speed with which we acted paid dividends throughout the year.
From a commercial perspective, we continued to build on the success of our type pure value stabilization strategy with new contracts and expansion of our types of reflects portal.
We also expanded our <unk> portfolio with entry into the mobile aftermarket, which we believe will be a significant source of value.
<unk> continues to deliver innovative chemistry, and business models, which create long term value for our customers.
After bottoming in Q2, the momentum we saw in Q3 continued to build into Q4 or.
Our full year financial results reflect the strength of our recovery, most notably the $540 million of free cash flow we delivered.
Our free cash flow for the full year 2020 was $371 million higher than in 2019. This included executing actions to reduce costs by $160 million and our capex by $125 million and response to the pandemic.
We also took advantage of favorable conditions and the debt capital markets to refinance some of our debt extending our maturities and further strengthening our balance sheet.
We continue to maintain strong liquidity and financial flexibility.
More recently on January 2002nd of this year, we announced the resolution of our legal dispute with Dupont and core Teva and the establishment of a cost sharing arrangement and and escrow account to be used to support and manage potential future of legacy PFS liabilities.
And at the same time, we announced the settlement of the Ohio PFS of late and litigation ex the advocates which remains on appeal with $29 million of that $83 million settlement contributed bank of Moore's the.
The press release and 8-K from the January 20 <unk>.
Contain the details, including the binding Mou.
As I said at that time, we view this agreement as providing significant protection and and risk reduction for <unk> shareholders.
Finally, we have announced the fourth quarter split of our Fluoro product segment into two new reportable segments thermal and specialized solutions or TSS and advanced performance materials or APM.
Mark Newman is going to cover the details behind the re segmentation when he covers the business results.
And for that though I'd like to share with you some leadership transitions and why we are so excited about the future here at <unk> <unk>.
Moving to chart four.
First off Brian smell of the president of our titanium technologies segment will be retiring after 40 plus years with the company.
Brian has led our titanium technologies segment since spin and under his leadership, we have transformed our tier two business significantly.
We added world class capacity, and our Altamira, Mexico facility improved our cost position globally further developed our mining capabilities and implemented a unique go to market model and tighter value stabilization of our TBS.
And I'm proud to call Brian of colleague and friend over the past 30 years, and both Dupont and <unk>. His legacy will live on moving towards for years to come.
Ed Sparks, who currently leads our fluoro products and chemical solutions segment will be taking over leadership responsibilities for titanium technologies, while retaining the responsibilities for chemical solutions.
And is a seasoned leader with deep operating technical and commercial experience, primarily and our titanium technologies segment, where he started his career and we spent most of his time of the company.
And is a great leader and a great thinker I look forward to working with him and the entire <unk> team.
The take or tide pure franchise to new Heights.
Turning now to chart five.
As you all saw on the press release and the fourth quarter, we divided our fluoro products business into two new reportable segments of Florida, Chemical's becomes thermals and specialized solutions, while flow of polymers becomes advanced performance materials.
We've got two great women lined up to lead these segments and.
Alicia <unk> will lead our TSS business <unk>.
Alicia has been leading this business within flow of products over the last year and this head of variety of the rules and a career with <unk>, including VP of global sales commercial operations and supply chain for our TT segment Corp.
Corporate treasurer, and our leader of the Investor Relations function.
Alicia is an excellent leader and will be driving our growth and <unk> free on and the rest of the TSS portfolio.
Denise Bingham will lead the APM business, Denise has deep experience and the chemical industry with over 30 years of commercial operations and supply chain experience.
Recently, Denise was VP of operations for flow of products and led a significant transformation effort to improve our manufacturing processes and reliability.
And I look forward to working with Denise and.
As she continues to improve the performance of the APM segment and develops new pathways for growth.
We are very fortunate to have the bench strength to promote these three talented leaders from within and Tumours to their new positions.
Congratulations to you all.
With that I'd like to turn things over to Sameer to go over the financial results from last quarter and the full year Samir.
Thanks Mark.
Turning to chart six.
We delivered solid full year of 2020 results the performance weighted to a relatively strong second half and line for the global macroeconomic recovery.
Full year net sales of our $5 billion as COVID-19 impacted demand across all segments and end markets.
GAAP EPS and adjusted EPS were $1 per <unk> per share and $1 98 per share respectively.
Despite the drop in demand adjusted EBITDA was $879 million with margins holding flat at 18% and a year over year basis.
This was the result of our $116 million cost savings initiative launched in early 2020, which was partially offset by expenses incurred late in the fourth quarter related to legacy litigation work and remediation activities and our Fayetteville site.
Looking ahead, we anticipate the cost program to continue through the benefit of the business and 2021 and beyond.
We expect to convert roughly 20% of the 2020 cost savings the structural savings that will benefit us on ongoing basis.
Capex declined from $481 million and 2019, the $267 million and 2020.
Largely due to deferral of growth projects.
As Mark mentioned on the previous chart free cash flow was strong at $540 million up $371 million from the prior year, despite lower underlying earnings the.
The continued to focus the business of cash generation throughout the year.
Turning now to the results from the quarter, which I'll cover on chart seven.
Fourth quarter revenue of $1 3 billion was essentially flat to last year's fourth quarter, reflecting strength and the recovery and demand momentum from the third quarter.
Sequentially volumes improved by 9%, but the pricing holding up.
And in typical of ourself of this time of the year given the seasonality of our businesses.
Both net income and EPS improved on a year over year basis, and adjusted EBITDA of $19 million to $246 million for the quarter.
Margin drove slightly on the year over year basis from 18% and held steady from the prior quarter on a sequential basis.
Free cash flow was $300 million.
This is the third best free cash flow quarter since spin off.
The combination of cost controls working capital discipline and lower Capex were key drivers of achieving this great result, and.
And total Q4 was a solid quarter to close the year on and demonstrate the momentum and the businesses as the move into the first part of 'twenty 'twenty one.
And the final note our board of directors approved the first quarter of 2021 dividend of 25 per share.
This is unchanged from the prior quarter and will be payable to shareholders of record as of February 26th 2021.
The most continues to deliver consistent and stable dividends to shareholders, even some of the worst portions of the COVID-19 pandemic by.
A testament to the strength of our businesses balance sheet and cash generation potential.
Turning to chart eight let's review of the EBITDA bridge for the fourth quarter.
Fourth quarter of 2020, adjusted EBITDA was $346 million up from $227 million and the prior year period.
So the headwind across all segments and a year over year basis.
Partially offset by improved volumes and titanium technologies and increased at the full adoption and our blinds business.
I don't think of the small benefit in the fourth quarter with stronger Euro versus U S dollar being the primary the priority.
Lower cost across all of our segments of our partially offset by higher corporate costs related to an environmental remediation of Fayetteville works and higher legacy legal costs.
And total costs and of the contributed $31 million to adjusted EBITDA on a year over year basis.
Overall fourth quarter with the strong results locomotives and I would like to thank the team for the extra effort because of the year strong.
Let's turn to chart nine <unk> co and liquidity.
And then inside of the last few calls liquidity and our balance sheet remains strong.
Our cash balance at the end of 2020 was just over $1 1 billion.
And increase of $149 million from Q3 2020.
Operating cash flow of $353 million, while capex was $53 million.
Dividends for shareholders were $41 million.
And the previously disclosed during the fourth quarter, we completed the refinancing of our 2023 U S dollar bonds.
We refinanced the roughly $900 million of 2023 bonds with issuance of new $800 million 2028 bonds and using approximately 100 million of balance sheet cash.
The interest rate on the new bonds of <unk>, 2% versus six and five 8% on the older bonds and.
And the result, and were able to extend the maturity tower the reduced the principal amount and lowered our annual interest cost.
We ended 2020 with $4 1 billion of growth debt.
Net net of cash was $3 billion, resulting and creating net leverage of approximately three four times.
We continue to be well positioned from a balance sheet and liquidity perspective as the recovery continues.
With that I'll turn things over to Mark Newman, our Chief operating officer to talk about the recent segment split and provide more color on the business results Mark.
Thanks, Sameer and good morning, everyone I'll begin my remarks on chart 10 day.
And the customer centered is of value, we hold Hyatt <unk> core to how we drive growth and create value over the long term.
Today, we are taking the step on our journey to create and more customer centric organization through the creation of two new segments.
<unk> and specialized solutions for money Fluorochemical and advanced performance materials, formerly floor of polymers.
We believe that this change helps us better align with the fast evolving needs of our customers.
As we shift the focus from the molecules, we make to the solutions, we deliver per unique customer application.
This new alignment builds on the success, we have had across for our products, both chemicals and polymers by bringing us closer to the customers. We serve we are confident that this change will allow us to speed up our innovation better allocate resources to the most attractive growth opportunities which are.
Tied to secular trends and each business and drive accountability for execution across the new segment.
Finally, we believe you our investors will benefit from this additional clarity on the composition of our businesses the.
The key factors driving performance and clarity on the long term value creation potential of <unk>.
Let's talk about thermal and specialized solution starting on this chart.
As the industrialization and globalization and advance the ability of refrigeration to support comfort safety and health are becoming more critical or thermal and specialized solutions business and enables modern mobile air conditioning.
Generic cooling and coal supply chain.
We invented the category with Fran and today, our blockbuster low DWP refrigerant opt in.
Power some of the most advanced and environmentally friendly refrigeration solutions the.
And the IP portfolio of behind opt in and refrigerants is robust with patents that extend into the late 2000, twenty's and even the <unk> for some <unk>.
The porting our continued differentiation in the marketplace for years to come.
The combination of our category leadership and substantial investment in this sector have enabled us to deliver strong cash returns over time.
As a result, we believe the business is well positioned to continue to generate significant cash returns for shareholders.
Looking ahead and things are evolving fast from mobile devices. The computer data centers. The cars, we drive progress means getting faster smaller and therefore hotter as a result, the world needs innovative solutions for cooling and thermal management.
Our TSS segment is focused on developing new sustainable solutions across a wide range of high growth and emerging and market.
And I am confident that under <unk> leadership, we will achieve the full potential of the <unk> platform and unlock tremendous value through our TSS segment.
Let's turn to chart 11, and our new advanced performance materials segment, which consists of our portfolio of high performance polymers.
The most demanding and essential applications, which enabled monitoring and life continued to drive material specifications and performance demand even higher.
Our ATM portfolio of polymers have the highest performance envelope and their respective categories from thermal stability to friction management to unique dielectric and chemical properties.
<unk> products are specified into a broad range of markets and and uses from Phyton in automotive the crew.
<unk> and aerospace.
The firm and semiconductor infrastructure.
And number of our brands enable renewable energy and electrification.
<unk> high and ceiling.
Lubrication chemical and structural support where are the materials fail.
Most notably.
Our gnathion membrane sits at.
At the literal and figurative core of the hydrogen economy.
Barring fuel sales and P M Electrolyze yours.
We believe our expertise and building unique solutions from our chemistry is unmatched and demand will only increase with time.
I look forward to working with Denise to improve performance through the course of the current recovery.
And while investing to unlock the growth potential in this segment.
Now moving to the segment results, which start on chart 12.
Our titanium technologies segment continued to build momentum across the second half of the year with volumes increasing on both the sequential and year over year basis in Q4.
The demand across all regions and end markets rebounded from COVID-19 related loads and our operations and supply chain have responded well to the increased volume.
Pigment pricing at the account level was stable throughout the year with prices and certain channels rising into year end.
The team continued to execute against our TV strategy in 2020 day.
Delivering new Ava contracts and growing our share of volume through flex and distribution.
Full year adjusted EBITDA increased 1% from 2019, despite the sharp declines early in the year, resulting in margins of 21% relatively flat versus the prior year.
Fourth quarter, net sales and adjusted EBITDA rose, 13% and 30% respectively on a year over year basis, more importantly, net sales rose, 13% and adjusted EBITDA increased 16% on the sequential basis.
Yes.
Volumes were unseasonably strong across all geographies and product lines.
Selecting the breadth of the recovery across the portfolio.
Looking ahead, we expect the recovery to continue into 2021.
With a much more normal coating season ahead in Q2 and Q3.
We are of course operating cautiously given the ongoing COVID-19 pandemic across most of our major markets.
TBS, which we pioneered and believe as the key customer benefit.
<unk> to be a source of differentiation and strength for us with our customers.
Ava customers continue to realize the benefits of reliable sourcing and predictable price.
Flex gives us unique value proposition with new and existing customers without the commitments of long term contracts.
We will continue to leverage the gains we've made in both of these channels the gain share consistent with our goals finally from a cost perspective, we are anticipating some inflation and supply chain adjusted across our industry. While these could temper the margin improvement opportunity across the year.
We do believe they are transient in nature as we continue to regain share in this segment.
Moving to chart 13, we have our first look at our thermal and specialized solutions segment, our TSS as we call. It 2020 full year net sales of $1 1 billion were down 16% from 2019, reflecting COVID-19 related demand headwinds.
Automotive plant shutdowns early and the pandemic had a significant impact on volumes given our tier one relationship with many Oems.
Price was the 7% headwind, primarily due to contractual price downs and soft of stationary market conditions.
The man recovered in Q3 and Q4 as are the production resumed with more normal demand patterns returning in Q4.
Despite top line pressure adjusted EBITDA for the full year 2020 was $354 million as productivity gains from our Corpus Christi operations helped to offset lower sales.
<unk> EBITDA margins.
Actually rose by 200 basis points to 32%.
On a full year basis.
Reflecting productivity gains and cost actions across the business as we look ahead of the business continues to expand <unk> presence in the auto aftermarket as we announced early in 2020.
We're also investing behind additional growth and stationary plants.
We continue to drive enhanced enforcement of F gas regulations in Europe, and the wake of the 2021 quota step down that we have yet to see sustained evidence of a turn.
And the U S. The recently passed aim act should drive additional volumes for oxy and stationary blends as the hfcs are phased down over time.
We continue to believe our portfolio of low DWP operating refrigerants are well positioned to capture share and health of our customers do their part to combat climate change.
Turning to chart 14, now to cover our advance performance materials or APM segment.
Full year net sales for the business or $1 1 billion again, reflecting COVID-19 demand declines across nearly all end markets and geographies volumes.
Volumes were down 15% on a year over year basis, while price was a relatively small 2% headwind.
Adjusted EBITDA of $126 million resulted in margins of 11% on a full year 2020 basis down from 2019 levels.
Looking at the Q4 performance, we did see a solid rebound from Q3 on a sequential basis as net sales and improved 16% from Q3 to $279 million.
Volume of improved across all geographies and most end markets and margins expanded by 600 basis points sequentially from the Q3 trough.
The pace of the recovery continues to build here and the early parts of the year across most of our APM portfolio.
And 2021, Denise and her team will be focused on improving the performance of the business.
Driving top line recovery and growth, while continuing to execute on productivity and cost actions.
<unk> and 2020.
While many of our APM and markets were strongly impacted by the pandemic. We believe we are well positioned to benefit from the recovery with significant margin expansion of potential ahead.
Moving ahead to our chemical solutions segment on chart 15.
Full year sales were $358 million down, 33% compared to 2019, reflecting portfolio changes.
Customer mind shutdowns and COVID-19 related issues reduced demand for our core mining solutions product lines, starting in Q2 and extend it into Q3.
However volumes began to improve in Q4 with December sales the highest in 2020 full year adjusted EBITDA was $73 million of strong technology licensing sales in Q4 helped to offset weaker performance in prior quarters as a result full.
And year margins were 20% and the improvement of 500 basis points from 2019.
And the business will look to extend its fourth quarter performance into 2021, continuing strong momentum and mining solutions and leveraging strong global demand for glycolic acid.
I would like to cover our 2021 guidance starting on chart 16.
While we believe the strength of the global economy continues to build as we exit 2020.
Our outlook has been built and the context of an ongoing pandemic and.
And a non synchronized global recovery with several supply chain stresses.
Starting at the top we.
We expect to generate between one and one <unk> one 5 billion of adjusted EBITDA in 2021.
At the midpoint. This represents a 22% improvement over our 2020 of results. We are projecting capex of approximately $350 million as some of the projects deferred from 2020 are restarted later this year.
As a result, we are targeting free cash flow of greater than $350 million.
Which includes disbursements of approximately $45 million in 2020, Covid relief program deferrals.
We continue to hold true two of the discipline of returning the majority of our free cash flow to shareholders.
Through our dividend and share repurchase programs.
On the next chart and consistent with prior years, we're providing a bit more color on the composition of our Capex for 2021 for the upcoming year, we expect run and maintain capital to be steady at around $200 million.
As we've said in the past run and maintain can vary between 202 hundred $50 million for the enterprise, depending on our turnaround schedules across the fleet.
For 2021, we are bringing back some of the growth investments, which we deferred in 2020.
These are the highest IRR and most strategic programs and the portfolio and we anticipate they will drive substantial long term earnings growth for the company.
We anticipate investing approximately $75 million and growth programs and 2021.
The regulatory and sustainability of Capex of $75 million make up the remainder of our $350 million target.
I want to assure you that the organization continues to apply the lessons learned from the cost efficiency and capital Frugality, that's served us well in 2020.
All of our focused on maximizing the value of our great portfolio of businesses.
With that I will turn things back over to Mark.
Thanks Mark.
Turning to the last chart as we close our remarks I would like to take a moment to step back from 2020 and take a more holistic view of the five year journey, we've been on here of course.
Since spin we've been focused on creating a different kind of chemistry company.
Company, which could showcase the power of chemistry, and delights, our customers and investors with the structure and behaviors that fits the world We live and.
Starting with the five point transformation plan, we set out to change the foundations of the business to build the more focused portfolio of leaner fit for purpose cost structure and a culture that rewards performance excellence.
Not only did we execute rapidly and that vision, we kind of side these ambitions and our valued customer centered refreshing simplicity collective entrepreneurship safety obsession and unshakable integrity to ensure that the spirit of the transformation with new bonds.
Next we set out to and invest in our core businesses, we put significant capital of the work to build for the future, including our new Altamira to line, our Corpus Christi and facility and the <unk> discovery hub at.
And at the same time, we invested and changing their business models, such as type your value stabilization to help soften the cyclicality that presented issues to our shareholders and our customers.
We initiated our aggressive 10 corporate responsibility commitments, a shining example of creating a win win win for ourselves and our customers and the planet co.
<unk> has proved the value creation and customer value and sustainability do not have to be a zero sum game. We can create solutions that work for all our stakeholders. It just takes a bit occurred and the conviction to see it through finally, we have always been looking for opportunities to derisk to more of.
And for you our investors day.
And we just struck with Dupont and Cortez and the last month does just that.
And as I look forward now to the next five years I could not be more excited about our potential as the company.
From solid and more stable growth of our types of your franchise to the realization of the full potential of the optima and platform.
To growth and our ATM polymers, which are at the heart of the engine that will drive the hydrogen economy and <unk> infrastructure.
The best is certainly yet to come here of tomorrow.
With that operator, please open the line for questions.
Thank you as a reminder to ask a question and you will need to press star one on your telephone.
To withdraw your question please.
Perhaps of the pound are and hash key.
And we ask that you limit yourself to one question and one follow up and re queue for any additional questions.
Your first question. This morning comes from John Mcnulty from BMO capital markets.
Yes. Good morning, Thanks for taking my question and congratulations on a really strong and of the year.
When you think about the tio true industry and the up cycle that looks like we're starting to enter at this point I guess can you can you kind of help us to think about how you expect to participate and with regard to both pricing and equally important non volume capture how should we be thinking about that.
Yes, John Great question.
We look and you're right, we're seeing a nice uplift fourth quarter I think we saw every segment every region have significant growth.
We're seeing net continue as we go into the beginning of this year.
And so number one we're going to participate and the growth.
<unk> been very clear to everyone that we want to get back to our.
And capacity share by the end of this year beginning of 'twenty two.
And so that's our goal. So you will continue to see US move along in terms of best standpoint, So that's where the volume will play for us and we see that very positive we're getting more people coming into our Ava contracts at the same time, so that's giving us confidence as well from the price standpoint, obviously, we have some adjustments that can be made inside of the Ada.
The contracts, but the the basis of those agreements are really the good stability to our customers. The the flex portal, obviously gives us the biggest opportunity on price.
Eva and gives us some of the opportunity because remember there is adjustment zone there based on producer.
Producer price indexes, but in terms of the flex portal.
Which as we said he is still going and be a significant portion of our of our volume we do ability to move the price every day and in fact, we continually move net price and that is moving on a steady stream of right. Now. So I think we of the opportunity to participate both on the volume side and the price side.
Got it.
I'm, sorry, Mark I might just add we have pricing capability, both in flex and and our distributor channel. So so we do have.
Ability to take price on a significant portion of our volume, but to Mark's point, our Ava customers.
Enjoy the the protections of long term agreements, which we do as well.
Kind of fair enough no. Thanks for the thanks for the color and then I guess as a follow up on the on the floor of business first of all thanks for breaking out the two divisions because it definitely helps us to think about it the right way I guess thinking about it though like looking at the advanced performance materials side.
The margins and admittedly are a little bit lighter than what we even thought they were but it's obviously at the snapshot in time right now and.
The odd time to be kind of getting that snapshot. So I guess can you speak to how we should think about the operating leverage and that business and where when we're back to kind of more normalized volumes like where where we should be thinking about the the margin potential for that business.
Sure Joe and then maybe let me start there and then and I'll hand, it over the Mark to give you a little bit more detail.
So you see the you see the margins that we're sitting on now and spark since he was leading net the business and Denise <unk>.
And our operations have been really working over the past year year, and a half really giving the cost points right inside that business. So.
So we have tremendous leverage from a variable margin standpoint demand will move as we as we drive our demand and we've talked about the demand of the existing business, but also the <unk>.
The <unk> as well as some of those membrane work and fuel cells and.
And the hydrogen economy are going to push demand even further beyond that are going to be really be the lift that's going to take those margins up. So we anticipate by the end of this year, we should be at a run rate at the high teens of margin EBITDA margin and net business and if you look back in time, and that's where this business was when they had higher and higher volume.
And we've taken net cost point of down inside the business to give us that leverage to be able to do so so we need additional volume, but you don't need ridiculous of additional volume to get the and Thats why we believe by the end of the year, we'll be at that kind of a run rate and mark on the loans.
And yes, yes, mark the only other thing I would add to give color on the margins. This year is and our focus of running the business for cash.
That business is that segment is probably disproportionately affected given the operating leverage but as we as we work into the recovery which is underway.
Youll see the impact there and to Mark's point.
This was with key to a lot of of the structural cost and operating reliability improvements and that business. So you will see that reflected as we get stronger top line and hold the line on cost you will see that reflected and improved margins and as Mark said, we think high teens is something we should be striving for this year.
<unk> is the starting point.
Got it thanks very much from the color.
Okay.
Your next question comes from Hassan Ahmed from Alembic Global Advisors. Please go ahead good morning.
Mark.
Good morning.
Mark wanted to revisit the titanium dioxide again.
Look you guys talked about some cost pressures as you look at 2021.
And as I take a look at sort of spot pricing for a variety of sort of or it seems that there seems to be some or pricing momentum of evolving.
And on the other side of it you know, there's obviously been a lot of talk about.
Higher shipping costs and.
And those higher cost of playing a role.
And sort of price increments for the variety of commodities.
Lots of you could parse out the door to sort of cost components.
And how you guys are thinking about doors in 2021, and what you guys may do to offset some of those costs.
Yes.
One of the lot of the work we're doing on the <unk> side. This year and if you look at our and our capital spend if you. If you wanted underneath that a lot of the capex, what we're gonna be moving on the <unk> side is really driven off of cost.
To drive down costs, so whether that is to expand our.
Or capability and non Florida mine, the Florida, and Georgia mines, or whether it's to allow us to use the.
The lower grade ore across the broader portfolios of more that's where a lot of our investments of one and we're very focused on what we need to be doing the two ongoing not just this year, but ongoing really operate at a lower cost point within the TT segment from and or perspective, most of our or is <unk>.
The contracted for the year.
So that's not going to be and effect on us I think your hypothesis is right is that or usually follows pigment prices. So of pigment prices move up I think over time through the year, you have ups and Fox.
And the system that you could see oil prices the amongst the best can be a minimal effect to us because of the contracting that we already have in place from that standpoint, and then from a shipping point of view I think that's something we're all dealing with in terms of cost from that standpoint, and again, we tried to be as efficient and effective as possible around that being a large.
Player and in many of our product lines and giving us some of the advantages that we have around the shipping side. So I think we have that pretty well and hand from that standpoint, and something that we've contemplated inside of our guidance.
Okay. Thank you and as a follow up.
You guys touched on titanium dioxide volumes, obviously, you guys are and a unique sort of situation where you.
You can gain market share through the course of 2021 and what I'm trying to understand is as I take a look at.
Sort of consulting demand growth estimates for the Iot globally, and you have some sort of big numbers out there for 2021.
Sort of call. It 708 of the sand demand growth year on year, I'm, just trying to figure out.
Obviously, the market will grow the way that the market will grow.
How should we think about how you guys are situated in the growing pie and comes off.
And how you could potentially grow above and beyond.
The market growth.
Could you grow like the 100 300 basis points above whatever tio drone market demand growth is for 'twenty and 'twenty one.
Yes, so clearly.
And we see an opportunity in a tight market dynamic coach we're experiencing today.
And to regain share and therefore.
Take a disproportionate share.
Share of the the <unk>.
High grade pigment growth as we go into this year so.
That's certainly part of how.
We're moving forward and that could translate to even low double digit growth potentially as we look to the to the full year.
So that's the way you should be thinking about it is yes. The market growth is certainly a robust year mid or high single digit and we should be above that and very good.
And maybe just one last thing to add to that Joe don't forget we have capacity some of it because it has been going to meet the needs and the way our Ava contracts are structured.
If the market grows.
Remember, we don't have volume commitments with our customers, we have market share and commitments from them and so as the market growth we grow with them. So as Mark said, we have the capacity and the ability to growth beyond the market growth.
Perfect. Thank you so much.
Okay.
Our next question comes from Bob Court from Goldman Sachs. Please go ahead.
Thank you good morning.
Mark and Rob.
Thanks, John maybe asked it but I wanted to dive a little deeper into the margin potential I guess all of us.
A little surprised of APN margins were still weak.
And thank you.
And maybe get up to mid teens, which may be argued at the last peak.
TSS was.
Hi, <unk> low 40, so when we think about the recovery path back to that $780 million or so of EBITDA for the combined floro.
Can you give us some sense of all of the cadences to get back there and if you were to get to those same industry conditions as TSS gotten so much better because of the lockdown and the new plant that.
780 isn't a ceiling of can be significantly higher.
Yes, and when you look at TSS.
Again, the up beyond the plant and the continued growth at the end of its product line, obviously is what the enhanced margin playing.
Playing out so the more volume from <unk>. The more we can run our corpus facility that really enhances the margin of error on the ATM side. We believe we can get to a run rate of the high teens by the end of the year.
And then that's not even the taking into account the volume that we're really trying to drive and these other areas around <unk> and membranes that go when the fuel cells and hydrogen, which we think is probably 18 to 24 month kind of growth.
And from that standpoint, so so we feel fairly confident and so when you combine those yes, we probably had a very high peak at one point of the combined floral businesses a lot of things played out during that time and inside of that don't forget one of the very high HFC price during that period. So that's the one.
And that you have to put into the the slides and you probably not going to see those kind of the HFC prices going forward, but you are going to continue to see really really good.
Drive on an opt out and youre going to see drive on and as the Covid comes in and Youre going to have less HFC. That's just the way. It works. When you are going to have more on that side. So you might not be able to get to the extreme.
Margin side that we had before but you're going to see continued improvement and both of the usage of moving forward.
That's helpful and can I add.
And I ask on the Amax and it looks I guess, the sort of definitive of how it progresses, but it looks to echo of what's happened in Europe. So would you see the same sort of <unk>.
15 year pass three year step downs and.
Is there an opportunity from a quota system and North America like you've seen in Europe.
Yes, absolutely, yes, good usually the way that thing works and.
Now it goes just to be clear. The aimed act is in place now it's been legislated and we have it now the EPA puts the rulemaking and place right. So and the EPA now takes this and they put the rule, making in place and in the past it has been very much a quota based system.
And with a sliding scale in terms of when that happens and they are in the midst of doing that now obviously, we're getting are moving from there.
Setting, where the where the base level is as well as the when the court of step Downs will happen and so this is something that will be very positive.
Great. Thank you.
Sure.
Your next question comes from Josh Spector from UBS. Please go ahead.
Yeah, Hey, guys. Thanks for taking the question.
Just a couple of the key faucet right and then but you have the Dupont and quite to the so part of that is your share and have the ongoing cost to address the heritage of liabilities.
Wondering if you had the agreement in place last year, what would be the impact on EBITDA and free cash flow.
Just on the sharing that and how is that flow through and.
And also related with that and your free cash flow guidance of $40 million to $50 million does that include the $100 million co pay late this year.
Hey, Josh the estimated let me just address the first question.
If you just sort of level set all of the legacy <unk> b, the environmental remediation of the legal costs are and the corporate and other segment.
Measures, so historically with the <unk>.
In fact, you have to buy the divide into two the FIFA and legal costs on average over the last five years of spend as being roughly $30 million.
And if you look at our 50 50 of sharing agreement and we should see of $15 million benefit to the EBITDA and to the free cash flow from the legacy cost sharing.
And just wanted to.
Just 0.1 thing out debt.
Given the Covid and COVID-19 impact on the level of activity in 2020 of the year over year. The impact is probably going to be more than the $10 million kind of range, but that's all of you should think about the impact from both because of <unk>.
Legal cost side on the environmental side of majority of these costs are actually adjusted out of the adjusted EBITDA, So you're going to see and many of minimal benefit to the adjusted EBITDA, It's really of free cash flow story, there. So as the money gets spent and.
And the products cost gets shared and youre going to see and impact on the free cash flow relative to history, but thats very product basis, it really depends on the year over year on year.
And what projects are going to land okay.
But that won't be any adjusted EBITDA and earnings impact that you're going to see.
And going back to your question regarding the guidance $3 50, 350 does not include the $100 million.
Propane.
Which is not part of the free cash flow.
Sure.
Okay. Thanks, that's helpful and just a question on the split with Florida of products I'm. Just curious now that you separate the earnings piece of that which segment has the upstream assets and hiring of transferring the fluorocarbon intermediate across the segments and try to kind of figure out is there any economic impact and that allocation of that kind of makes a difference in terms of.
The presentation.
Yes.
I'll, let Mark go ahead.
And just kind of say the TSS segment is where the supply chain starts with the manufacturer of HFF and our Laporte facility.
And so the.
And the upstream of the value chain, converting Florida, aspire and into HFF and refrigerants starts in TSS and is transferred at cost to our Florida polymers business for all of the downstream applications.
Thanks, that's helpful.
And welcome.
Your next question comes from.
Just following on from that.
RBC capital markets. Please go ahead.
Great. Thanks, good morning.
Good morning, and appreciate the detail.
On the guidance as well and congrats on getting through 'twenty.
I guess I just wanted to ask and maybe you could parse out the guidance a little bit further by segment what.
What kind of growth are you expecting and and the two fluoro segments.
You're expecting the progress on the illegal import side and.
And maybe some recovery on the automotive.
Diving for chemicals, higher and then similarly with Tio too.
Many of the consultants are forecasting a pretty.
Sharp recovery and EBITDA per ton led by that volume, but also maybe 7% and 10% price increases so.
It just appears that.
Is there any element of conservatism and your guidance is the back half weighted maybe you can just talk through some of the breakouts on time.
On that range.
Yes, great question, and obviously as we work at this stage of the year as we work through COVID-19, and its impact around the world and.
And we think it's prudent to be cautious and how we're thinking about the markets.
Clearly.
As we talked to earlier, we see good growth strong industry growth on tio too and we see our ability to participate.
<unk> that based on our available capacity and how our contracts work.
And how our go to market strategy of works.
And as I look at our floral businesses.
Clearly.
And we see growth and volume on the auto side. There are some questions around how much of that will be impacted by the current semiconductor chip shortage.
But certainly in our.
Our view is some of the losses and volume and it will be somewhat recovered this year and that's how we're looking at the market.
On our TSS segment I also wanted to flag, we are seeing some of the roll off of various HFC products like R. 22 of this year. So we have of transition in effect there.
And so that's part of the calculus of of the.
The full year, and then on TFS and on APM are of polymers business.
And that's been the slowest business to recover based on where we sit and the supply chain, but as we came into the end of the year, we're seeing good growth there and so I would say as we look at our full year guide.
It probably of the best the operating leverage in terms of year over year improvement will be and our tio too and APM segments and.
And that's how we look at the full year. If you look at the midpoint of the guide.
The $1 75 versus last year, that's about a $200 million improvement and EBITDA.
And when you consider that absorbs some of the costs.
And that we deferred last year of about $120 million or so that's back in our numbers.
That's all part of the calculus of our year over year guide so.
We're seeing great demand signals across all of our businesses and we're very encouraged by that we think it's prudent to be cautious where we are at this point and in the year.
Given COVID-19 and given some of the supply chain.
The stresses that we're seeing early in the year.
Great. Thanks of that I'll turn it over.
Your next question comes from Duffy Fischer from Barclays. Please go ahead.
Yes, good morning Fellows.
First of all around.
Floral so, particularly in Europe can you talk a little bit more specifically about what the step down will do and 21 with your view versus the illegal imports of what that does to your overall volume and then may be parse out.
Price was down 7% and.
In the fourth quarter, what part of that was mix what part of that was just the natural auto.
<unk> got built and year over year and how much of that was base line.
Yeah definitely I would say the what we saw in the price down as our mix of contractual price reductions as well as some customer mix on the land side that we're seeing.
To your question around.
The step down and the quota we think Thats certainly helpful.
And we're seeing some.
Green shoots as it relates to the bonds market and Europe today.
Clearly, we need more effective F gas regulation.
<unk> in terms of how they work.
We are all over that and as we've said previously we expect that we throughout this year, we should start to see some traction in that regard. So I would say in general our view is the.
And the blends market, we're seeing some positive signals, but probably too early to call in terms of the overall effectiveness of enforcement of regulations just yet.
Okay, and then just one housekeeping one.
I think I saw you only give us two years of history with the new segments. One is that correct and two of it is.
What are your brown to give us as far as historical data quarterly annual and when should we expect that.
Yes, yes.
Therefore, it is the Amir.
And yes, Duffy and in the 10-K that of you'll file Youll see at the data on that one for the day segment for the four segments.
Okay, great. Thank you guys.
Thanks Duffy.
Our next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.
Thank you and good morning, everyone I, just want to make sure I fully understood. The modest cost step up that you are talking about and the titanium section and 2021 and maybe you could just help us understand presumably there's some unit cost benefit from the significant volume that you're planning on getting back.
But as this modest cost step up going to offset that such that we should be modeling flattish unit costs and 'twenty, one versus 'twenty or how should we be thinking about it.
Just to be clear Vincent.
We see significant operating leverage and this business and while we are flagging that we are in an inflationary environment on some of the inputs as Mark said earlier and the call we have significant contractual commitments around the input. So we certainly wouldn't be expecting that.
To overshadow the EBITDA improvement in the segment and our view is.
And we should be.
Throughout the year and are back to sort of of mid Twenty's EBITDA margin.
And this business.
Okay. That's very helpful. And then just as the follow ups could you just help US bridge the free cash flow year over year I see the Capex is up and obviously the EBITDA is going to be up so how much working capital or are you anticipating coming back and it sounds like the.
So the legal issue was below below this line, but what else is going on and that bridge year over year and what do you anticipate doing what's your free cash flow, yes, maybe I'll start there and certainly it's America and add additional color.
If you look at and the guide of $3 50, and then you add back.
Some of the payments that we deferred and Covid that we're paying this year of about $50 million. Your starting point is about $400 million clearly we are participating in the upside on the revenue as the market recovers and that is the use of working capital.
Our expectation is we.
Through working capital productivity will be relatively flat on working capital.
But clearly as we try to make improvements there are continuing to focus there.
That could be upside beyond the 400 and.
That's certainly the intent.
And as we sit here today Samir and then if you of any other comments.
Mark will you hit it.
I wanted to clarify two quick points the deferred the format of the payment of that Mark just talked about these are all of the COVID-19 programs that are offered and different geographies. So these are not of any kind of the business cost of being pushed out.
Most of these are and for the in the form of taxes that Youll see again, and it's all kind of disclosed in the 10-K and will be disclosed and the kind of get us youll see the later today and the other point that I would say that as you kind of pick about the free cash flow I. Just wanted the ground you back into the free cash flow conversion rate them and even when you look at a $3 50, and the 45 of the deferred tax payments the payments that will make.
And in 'twenty, one, which are tied to 2000, and we get the free cash flow conversion well north of 40%, but can you guys youre going to think about our free cash flow outgrown and get back into the free cash flow conversion as youre going to think about it.
Thats all very helpful. I appreciate it.
Yes.
This concludes the Q&A portion of today's call and I would now like to turn it back to Mark Fernando for final comments.
Thank you Carol and thanks, everyone for joining us today as you can probably hear from our voices.
And we're very happy with the way fourth quarter ended.
We're very happy the way 2021, starting and we're even more optimistic of where we think the the year is going to go. So thank you to all of our employees.
<unk> really done everything they could make 2020 and successful as it was.
But we are very very excited about where the prospects of this company are and where we can really take 2021. So again, thanks again for your participation and as always thanks for your support of the company take care.
Ladies and gentlemen, this concludes today's conference call. Thank you once again for participating you may now disconnect.
Yes.