Q4 2020 Venator Materials PLC Earnings Call
Good day and welcome to the vintage of our materials fourth quarter and full year 2000, and 'twenty earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask question to ask a question you May Press Star then one on.
And your Touchtone phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to MS. Kate Robertson. Please go ahead ma'am.
Thank you Chuck.
And good morning, everyone I am Kate Robertson of Investor Relations of Anatol materials welcome to vent of towards fourth quarter of 'twenty 'twenty earnings call joining us on the call today are Simon Turner, President and CEO and cut and often executive Vice President and CFO.
This morning, we released our earnings for the fourth quarter and full year 'twenty 'twenty, if I of press release and posted the release and accompanying slides travel websites and kind of talk half don't come true.
During this call we may make statements about our projections or expectations for the future.
All such statements are forward looking and while they reflect our current expectations. They involve risks and uncertainties and are not guarantees of future performance.
You should review our filings with the FCC from more information regarding the factors that could cause actual results to differ materially from these projections or expectations.
We do not plan on publicly updating or revising any forward looking statements during the quarter.
We will also refer to non-GAAP financial measures such as EBITDA adjusted EBITDA adjusted net income free cash flow and net debt you can find reconciliations to the most directly comparable GAAP financial measures and our earnings release, which has been posted to our website at www dot.
On the telecom dotcom.
And she's now my pleasure to turn the call over to Simon.
Well, thanks, Kate and good morning, everyone welcome to our fourth quarter 2020 earnings cool, let's begin on slide three.
2020 was and unparalleled here with many unique challenges due to the significant impact of the Covid pandemic and in response, we took decisive measures to reduce costs and preserve cash.
Our associates rose to the challenges, we face and I am thankful and proud to work with and represent them.
During the year and it's what delivered 136 million of adjusted EBITDA and delivered more favorable cash flow than planned.
Turning to slide four on our titanium dioxide segment.
And the fourth quarter, our titanium dioxide sales volume increased 1% compared to the prior quarter and declined 2% compared to the prior year period. This represents an improving trend from the third quarter comparison and demonstrates continued recovery from the pandemic.
Average <unk> prices were stable year over year, Unsequestered Ali and all regions and sectors further demonstrating the benefit of our customer tailored approach. This is the eighth successive quarter, where prices have been stable.
Fourth quarter demand for functional T. O two was strong across all sectors from a regional standpoint, we saw further recovery in the Asia Pacific area and demand and Europe strengthened throughout the quarter. Despite the lockdown restrictions imposed.
Although demand in North America was strong our sales volumes were lower than both the third quarter and prior year period due to the lingering impact of the two hurricanes, which affected our joint venture facility in Louisiana.
Demand for our specialty <unk> products improved and the fourth quarter sequentially, primarily due to a gradual recovery within the textiles on automotive end market applications, which was in line with our expectations.
We expect them on for our specialty <unk> products to continue to gradually improve throughout 2021.
And the fourth quarter, we generated $25 million of adjusted EBITDA, and our titanium dioxide segment compared to $30 million and the fourth quarter, 2019, and 21 million and the prior quarter.
The EBITDA decline compared to the prior year period, primarily relates to lower fixed cost absorption and the fourth quarter of 2020 and increased feedstock costs, partly offset by benefits from our business improvement programs.
I would like to give a short overview as to what we are seeing with regards to China <unk>.
2020 has been a strong year for Chinese exports and looking into 2021, we expect exports the return to more normalized levels for a variety of reasons.
We have seen monthly price increases for Chinese T O.
Since September 2020, which have continued into 2021.
These price increases and our view are a result of rising ilmenite costs increased demand increasing freight costs out of China and.
The low inventories across the supply chain.
Sales are relatively more attractive and the Asian regions for Chinese producers. Consequently for the above reasons, we are seeing a pull back and Chinese exports to Europe and America.
This reinforces with our customers' mind the benefits of supply reliability consistent without tailored approach.
We feel optimistic given the healthy demand and the fourth quarter and the first quarter, we expect to see volumes improve sequentially. Following most normal seasonal demand patterns for functional T O two.
However, tight inventories could limit our upside, notably our joint venture and Louisiana was impacted by the recent southern decrease for several days.
Brexit also close and temporary delays of shipments both in and out of the UK.
Due to favorable <unk> fundamentals.
Fundamentals, we are engaged with customers and all regions and accordance with our customer tailored approach to implement price increases to reclaim lost margin.
We expect to see some price capture in the first quarter with further price capture throughout 2021.
Looking at our input cost ilmenite prices are rising and in 2021, the ilmenite feedstock cost will be of headwind, we expect to see some relief in pricing from rutile and slag feedstocks.
Turning to slide five on performance additives.
Revenues in the fourth quarter of 2020 was 16% higher compared to the prior year.
And this was due to stronger demand more specifically as it relates to our functional additives business, while we saw of recovery for products used in the automotive and electronics industries.
And fourth quarter, EBITDA improved by 11 million compared to the prior year period, and $10 million compared to the prior quarter.
The higher selling prices were the primary reasons from the improvement compared to the prior year period, whereas compared to the third quarter, we benefited from higher production and fixed cost absorption.
And 2020, our performance out of this business delivered an additional 8 million of EBITDA compared to 2019.
This demonstrates how resilient these businesses have been throughout the pandemic and we are optimistic given the fourth quarter recovery and demand.
And our color pigments and timber treatment business falls and volumes were higher than the prior year period.
And we did not see the normal seasonal declines due to favorable demand for products from these businesses as I mentioned earlier.
Mantra of functional additives benefited from a recovery and automotive and electronics and market applications.
Looking forward into 2021, we expect to see a more normal seasonal demand profile and color pigments and timber treatment with increasing demand for functional additives as the automotive industry recovers further.
Turning to slide six and our cost programs.
We delivered total savings in 2020 of 57 million 27 million of which related to temporary actions taken to mitigate the effects of the COVID-19 pandemic.
<unk> million dollars from on New 2020 business improvement program and $14 million from our 2019 business improvement program, which ended the year at full run rate as we expected.
And all activities encompassed in the 2019 business improvement program have been successfully completed.
Our 2020 business improvement program is on track to deliver $55 million of cost reduction by the end of 2022 compared to the 2019 baseline.
The timeline of savings in 2021 will be uneven and however, as temporary COVID-19 savings from 2020 roll off on a replace by new 2020 business improvement savings. This will be the most noticeable and the second and third quarters.
As a result of the agreement we reached with Representatives of the German employees and December we now expect future cash restructuring cost to be within the range of $40 million to $45 million, which is $5 million lower than previously announced.
I will now pass the call over to Kurt to discuss our financials before providing some additional comments.
Thanks, Simon let's turn to slide seven.
And the fourth quarter total adjusted EBITDA increased $2 million compared to the prior year period. The increase was primarily attributable to positive price mix and our performance additives business benefits.
Benefits from our business improvement programs were offset by prior year benefit of 3 million relating to a change and plant utilization, which increased overhead absorption as well as higher feedstock costs relating to our <unk> business.
Compared to the third quarter total adjusted EBITDA increased by $8 million.
And the third quarter and response to the Covid pandemic, we moderated our assets to align production with customer demand and we incurred lower fixed cost absorption as a result in the fourth quarter, our cost of goods sold improved by $11 million on the other hand, SG&A and other costs were comparatively higher and.
And the fourth quarter as we recognized more temporary COVID-19 cost savings in the third quarter.
Turning to slide eight and our cash flow considerations.
And we have been intensely focused on improving our free cash flow profile.
And the fourth quarter, we generated $13 million of positive free cash flow and this was the third successive quarter of positive free cash flow.
As of measured response to the Covid pandemic, we dramatically reduced our discretionary spending in 2020. This included reducing our capital expenditures to 67 million from 115.002 million 19.
We unlocked $39 million of working capital investment and 2020. The majority of this benefit came from a reduction and our inventories as we moderated certain facilities to align our production to the needs of our customers and 2020. We also made positive traction reducing our cash uses for.
Restructuring and pori related needs.
At the end of 'twenty and 'twenty, our total liquidity was $471 million consisting of $220 million of cash and $251 million of undrawn availability under our asset based lending facility importantly, we don't have any significant long term maturities debt maturities.
Until 2024.
As we think about 2021, we expect our capital expenditures to be in the range of 75 to 85 million a slight increase compared to 2020, as we invest and some modest discretionary projects the support future growth.
We will continue to be vigilant over our working capital and cash conversion cycle. However, it is likely that working capital becomes a modest use of cash and 2021 as the underlying value of higher selling prices and feedstocks are accounted for.
We will continue to exercise of extreme discipline regarding our cash uses as we work toward improving our long term cash profile.
With that I'll turn the call back over to Simon.
Thanks, Curt turning to slide nine on December 23rd we announced that funds advised by SK capital Partners LP completed that transaction with Huntsman and purchased just under 40% of the vendors was outstanding shares and 2021, we announced four new appointments to <unk> board of directors, including a new chairman.
As well as the retirement of two directors, giving <unk> board of current total of eight members. We have street received strong support from our board as we work towards improving the performance of our business.
We continue to continue to see an improvement and tio to industry fundamentals and we saw further demand recovery and the fourth quarter. Despite the usual seasonality.
And the first quarter, we expect to see of seasonal uplift in demand and exit the first quarter with volumes at 2019 levels for a functional <unk> products. We also expect higher <unk> selling prices as we continue to work with our customers who will receive received stability of supply as part of our tailored approach we.
Continue to be focused on recovery of our specialty sales on strengthening our leadership position and specialty and differentiated <unk>. We recently launched two new <unk> to differentiate the plastics grades and commercialize some innovative inc's application products and look forward to updating you with future developments as we further differentiates our product offering.
Our performance out of <unk> segment, EBITDA improved $8 million compared to the prior year and we see encouraging fundamentals within the segment demand within 2020 was very resilient and we look forward to further progression in 2021.
We are delivering on our 2020 business improvement program. We ended 2020 of the full run rate benefit from our 2019 business improvement program with the oil projects now complete.
We are on track with our 2020 business improvement program will deliver $55 million of annual savings by the end of 2022, which will improve the cost competitiveness of our business.
And as Curt mentioned, we delivered positive free cash flow for three successive quarters and we are committed to further strengthening the business through the revenue growth margin expansion and savings from our business improvement programs. We believe we are on the right pathway to maximize shareholder value and with that we thank you for your continued interest and vendor.
So I would now like to open the call for questions.
Thank you we will now begin the question and answer session.
I ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up of your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we'll pause momentarily to assemble our roster.
And the first question will come from David Begleiter with Deutsche Bank. Please go ahead.
Thank you and good morning.
Simon and Kurt just on tier two pricing, there's been some price increase and it's quite a bit and China, you've got some price increase and Q1 and Europe, but why why is it and why is North America lagging and one of the prospects for a price increase and Q2 do you think.
So, let's let's back up and look at those pricing dynamics, you mentioned that David we would confirm you the pricing as we said and the prepared remarks, and China has been rising off a low of base of course.
And we.
And we'll see in wenzel on and I want to emphasize the hallmarks of pricing we speak on it for ourselves.
Further the price traction in the first quarter, and we expect to see price traction throughout the rest of the year on.
As you are aware the.
Three major regions tend to converge and average pricing.
Market conditions pick up and.
And we cycle up and that will always be a higher low or medium for the from the three main regions.
I think the U S prices being higher and stable.
Period so.
And I say, if there should be any lag and I wouldn't be prepared to necessarily cooperate on statements you can understand why.
And the slightly higher price reach and that might be the case, but that said we.
We expect.
The b and negotiating with all of our customers across the regions on the tailored approach.
The range of price increases, maybe with regional differences, but with all segments.
Very good and just on performance of out of a very strong Q4 and even.
Unusual there and how sustainable is that type of performance heading into 'twenty one.
Yes look it was a very strong performance and full Q I mean.
We mentioned in the remarks, we saw some strong annual EBITDA progression in 2020, despite the pandemic, we expect to see continued progression in those businesses in 2021.
We saw some good demand for our products.
Sort of slightly more north American centric footprint and that business, we saw some recovery, Frank frankly, and our functional additives and auto which was very encouraging we saw some benefits from our announced improvement cost improvement programs, which we've spoken about on our color pigments and we saw some pricing and mix benefits. So.
I don't deny that we had on.
All of the sort of like all systems go in the fourth quarter was the strong results.
We will see progression on an annual basis.
And what we can say about performance additives as.
The demand profile tends to be on the seasonality profile tends to be and sort of more front and.
Of the year first half loaded type of profile. So I think thats, probably should give you something to work with about how we see the ongoing upward trajectory trajectory for that collection of businesses and it's been a pretty resilient performance David I'll, just add to that I think that.
As we think about the fourth quarter, we have seen of recovery.
And demand for automotive coatings, specifically within our functional additives business. We think that's the trend that continues as we go into 2021.
As we look into the color pigments business. We are also seeing the benefits of a lot of the restructuring that we have done in previous years now manifest itself within that within that business and so as we look at the demand trends.
Well as capturing the restructuring benefits that have done been done and in previous periods.
We see increased EBITDA growth here in 2021. So we were encouraged by what we're seeing and performance additives as well as what we're seeing and tier two.
Sounds good thank you very much.
Thanks, David.
The next question will come from Hassan Ahmed with the Olympic Global. Please go ahead.
Good morning, Simon and Kurt our morning Hassan.
Just a question around volumes.
You guys, obviously mentioned.
That's your volume.
Up 1% sequentially.
And obviously hearing some of your competitors speak you know sequentially volume was strong and obviously you highlighted the hurricane impact just trying to get a sense.
We would of scrape away of the hurricane impact.
Sequentially, we would have that volume growth number then.
Yes, I mean, let's just to come to the the central point of that question Hassan of around the Hurricanes.
<unk>.
The intending to break out the discrete answer to that question, but of what I would like to say and response to the question is that you know.
We moderated our assets in the middle part of the year and the third quarter of these assets don't just tune up on a dime of course, we had to be balancing our cash needs and it was a pretty strong recovery and the fourth quarter of the market level for <unk>. So I think while on.
Performance of <unk> as.
And as we've had we've said so look we did have low inventories as we came out of on the backend of of <unk>.
We've really been focusing down on that working capital and cash and the other thing to bear in mind. The think Hassan is that we've set of couple of times is for US. We don't think just about the the functional recovery and the fourth quarter, we got to think of a little bit about the specialty <unk>.
And is on the slower cost we were encouraged by what we see but the there's no doubt that the recovery in textiles, and cosmetics and the like is going to be at a slower rate. So there were sort.
A range of factors.
Over and above the hurricane and.
And I think that.
And we would've been up and may be more comfort of comparable to parts of the peer group absence of those factors, yes understood understood.
Now changing gears you know just.
Trying to get a sense you know, obviously pigment pricing is going up.
You know you guys as well as others in the industry you know have probably some longer term contracts on the pigment side. So so you know what I'm trying to get a sense of.
As you look at your portfolio and look at on longer term contracts. You may have you know would you be able to break out what percentage of your portfolio is under those longer term contracts and thats on the pigment side and a similar question on the ore side of things as well, because obviously, you highlighted or pricing going up.
And again, you Don could you give us a sense of what percentage of your sort of ore purchases are under long term contracts as well.
Yes, so I think the.
Start with the two parts of the question, we'll start with tier two pricing.
If we just have a look at.
What's been happening these past two years I made the point in the prepared remarks, we've seen ex eighth consecutive quarters now of stable pricing despite.
And some pretty significant economic challenges that the.
So we invented to and I guess the industry itself has faced.
During that period, a lot of discussion has been held with customers around contracts.
The contracts on a more bespoke than ever and our business again speaking for them the tool.
We do have a range of contracts.
Covering sort of spot three months six months of annual.
All of the way through this period, though has some we've taken great care to ensure that we don't limit within the <unk> ability to capture upward price shift because we so keen to restore margin.
Relating mainly to raw materials, which will come on to.
So we've taken great care with these range of contracts not.
Awesome. So I think that the way to think about <unk> is that we see ourselves with freedom to act and negotiate with our customers and don't have so.
Break so anchors and any way the constrain our upward price the.
Negotiations and we expect to see those price increases throughout 2021 in fact, I am turning to <unk>. Some of the dimensions of course, it's clear we do buy hundreds of in the.
The hundreds of thousands of tons of of <unk>.
Illumina, we bought by the significant amount of low grade ilmenite now.
One of the other sides to the recovery, which has been extremely strong and China, and which probably started ahead of of.
And the places has been the ilmenite pricing and demand has been very strong and.
So we have seen and we are seeing some ilmenite based headwinds coming through into 2021.
And that frankly in the middle of last year, we had not expected to see as that sort of headwind that said, we have seen some offsets with the higher grade and more expensive raw materials. So.
That's the dimension.
And that's the dynamic we see and all in all of feedstocks at this time.
It'd be helpful. Simon. Thank you so much thanks Susan.
The next question will come from Laurence Alexander with Jefferies. Please go ahead.
Could you help of just with the moving parts on the cash flow bridge for 2021, so how much of the restructuring costs.
And it will fall into this year, and how youre thinking about pension and other non operating items.
Sure Laura and <unk> go ahead, and why don't I go ahead and and take that.
Thank that.
We have given specific guidance around capex, you've got that and I think you can calibrate around interest and taxes. We also provided some guidance on working capital, we think that will move up.
And as the underlying.
Buying value.
And.
Moves up as we put through the price increase announcements.
The cash restructuring is going to be a little bit higher here in 2021 think about that in the neighborhood of 25 million ish as we pay for the 2020 VIP program.
And then for other cash uses including pension.
We continue to look for ways that we can optimize that.
And that cash use we do have some.
Pretty meaningful.
Valuations that only take place once every three years on some of the pension plans coming up this year and and we're hopeful that that will have a positive.
The impact on the amount of cash used required.
I think for right now Laurence if you want to take a conservative view.
You ought to plan on something similar to what we had in 2020 and.
And hopefully.
That will improve.
As we get through the said these valuations.
And discussions with with pension trustees.
Alright, thank you.
And as far as.
The next question will come from Stephen Byrne with Bank of America Securities incorporated. Please go ahead.
Yes, and you were.
And just saying a little bit earlier about.
The <unk> III pricing you know being.
Theyre being regional differences.
And that seems well founded well, we look at the spread though between Europe and China.
The price spread over the last few years has been and the six to $700 per ton range.
And now its 400.
Do you see.
Potential for the to return back to that historical spread.
Yes, I mean kind of just clarify of the crushers. The when you say return do you mean 700 as of 400 event back to 700 <unk>.
Questions.
Yes.
I don't see the potential for that in the near term for sure and year to date.
It's clear to me that if we stand back and.
And we look at the overall T O two environment.
Environment, we find ourselves and.
This year I suspect that we will see.
Sort of mid single digit recovery in demand volumetric demand and <unk> across the world year on year 2021 over 2020 on a pretty sort of strong recovery from what we saw last year.
And thats well underway, we see it around the world, we see frankly, and all regions and most countries and I think in the very near term that gives you an uplift of of.
Double digit percentages here and the first quarter with more seasonality to come and the Chinese exports was strong last year and I think they will pull back we're already starting to see evidence of pullback and retrenchment of Chinese products.
And we're coming into limited into Europe, and North America going back into the agent region because of the high of net backs driven by pricing and.
We have had customers who've been let down by some of these producers on.
This is cemented in the mines.
And why we have this tailored approach pricing and supply reliability and so thats at the front of the mines.
Of course Chinese prices, when you're talking about about spread that encompasses local Chinese pricing. If one were to sort of like look at the pricing outside of China, and the Asian region compared to the of our regions and that spread.
And it isn't and $700 and it's.
It's more of the order of three to $400 and I.
Anything I see that spread with potential to tighten over this coming period, because as we up cycle, we tend to see more convergence of pricing around the world.
And then just on the demand side when you look at the key end market the east.
All of the <unk> can you walk us through each of those key end markets and cancer.
Range, where is demand right now relative to pre COVID-19 levels.
Which of those and market segments is driving volume.
Volume response that Youre expecting.
Well I think the volumetric segments and functional <unk>, if you take between coatings and plastics and Thats, the broad church and encompasses industrial.
Architectural and on the range of polyolefin, and engineered polymers and and the range of the.
Hi, and plastics.
I think there is not really of difference between the two and Tim and that covers some.
Some 80% of global <unk> and what we are seeing there.
Is a strong recovery and I would I would peg those sort of segments around the as we exit the first quarter around the 2019 sort of demand levels or close to.
And there's no question about it now there are some specific sectors and we've picked out.
For us textile segment.
And sometimes smaller and smaller volume segments that we are definitely seeing.
Returning at a slow of speed of sort of a second speed and there I don't think we probably get back to 2019 levels till later in the year may be the third third quarter of somewhere in the second half. So that's probably that's of high level view of how the segment tree sort of picture is playing out right.
On.
Thank you.
Okay.
The next question will come from Duffy Fischer with Barclays. Please go ahead.
Yeah, Good morning Fellows.
First question is just around on the feedstock side, so ilmenite going up and rutile moderating a little bit as kind of a complete 180 from what's been happening on the raw materials side of things over the last couple of years, there's not a lot of new rutile supply. So is it that the industry of shifted to consume.
The more ilmenite and it's mix or what's causing that is the long term and duration do you think or is this just kind of of temporary anomaly, where emanates up and and rutile is down.
Yes, I think I would see this as more of us of our 10 pre phase.
Duffy and Thats, because the disconnect and economic recovery that we've seen these past six months with China really sort of started motoring along before.
We saw that pick up elsewhere and.
That is really driven.
Some of the ilmenite dynamics within China, and that's moved into tier two pricing within China. So on.
And the offshore ilmenite producers of being able to sell into China, and strong prices and understandably.
Though we don't like it of course.
They are agitating for Thai ilmenite prices to us and frankly, we have had and continue to have some extremely good contracts with these ilmenite supply. So that that's the way to think about Illumina I think as it relates to high grade rutile and slag.
This being the case these past couple of years that those increases of outpaced.
Tier two pricing and eaten into the margin as you well know and frequently rutile is right up there I think net.
It is the highest price feedstock.
Producers like ourselves always looking at ways to minimize that be that through low grade ore slack mixes and so forth and that is top of the effects of sort of like.
Moderating that rate of increase for the routes route sales, but I recognize the dynamic Q you pay and it's certainly not the one we've seen really over this past decade.
Okay and.
And then.
Maybe one for Kurt on cash I'm, just trying to tally up the differences on the cash calls 2020 versus 'twenty, one capex looks like it's up 13 working capital.
Probably consumes maybe 50 more go on from a positive to a negative restructuring up 15, maybe interest a little bit better. So can you net debt for me.
And if I'm looking on at EBITDA number what's the the.
The pluses and minuses on a net basis 2020 versus 21 to walk the free cash flow.
Well Theres a lot of moving pieces, there Duffy and I'm happy to circle up with you afterwards and.
I think that.
There is a fair amount of variability and some of those cash uses we have been careful not to provide quantitative guidance for.
For the 21.
Uses but certainly hopefully we've given you enough of it.
Steer so that you have and understanding for the direction and on some of those items, where we do have clear line of sight, we have given you some.
And so some numerical.
The items to consider.
And maybe just maybe.
Maybe just start on the industrial <unk> clearly.
We are extremely focused on our cash cash uses and all matters cash.
Areas, it's quite clear the.
Big numbers, and certainly and pensions and Capex, which of the units to the big numbers that I think there should be some sort of quite and quite clear sort of pathway. There and some of this frankly depends on the success is how we go through the year with pricing and the like because that's going to play heavily into the working capital, which is going to be and which was which was the <unk>.
Source of cash for us lost share and Thats. The one that we really got to focus on on and then that will ultimately determine the range but of course.
There'll be a corresponding shifted and the EBITDA too.
Fair enough. Thank you guys. Thanks Debbie.
The next question will come from Josh Spector with UBS. Please go ahead.
Hey, Thanks for taking my question I guess, if I could try one more time on free cash flow I guess, notably there's no pori expenses and your bridge for 'twenty. One. So I guess first do you expect any spending on pori this year and how does that kind of phase and on your expectations now for the next few years.
And as you kind of look at higher cost potentially and higher pricing.
Do you think free cash flow could be positive and 2021.
What are the odds of that happening and your view.
Well thanks for the question Josh.
We do continue to have some cash uses associated with pori.
And they will be up a little bit.
Relative to what they were in 2020 think about something in the zone of <unk>.
And $15 million or so.
Impaired two of 2020 number that was eight.
Where and 2020, we were able to defer some of the.
Some of the expenses that we have associated with pori.
As you can appreciate we continue to explore a range of options in order to reduce.
And that cash use there.
And so.
And that is ongoing but.
But there will be some.
Some leakage there associated with Pori.
As it relates to positive cash flow for the full year and 2021.
Do think debt that is going to be a pretty steep hill to climb.
I think we need to see a pretty dramatic improvement and EBITDA.
In order to offset some of the some of the cash uses that we have been talking about it certainly our objective to see cash positive not just for the quarter, but for a longer term, we believe that opens up optionality for the business.
Certainly, it's going to drive and improvement in the valuation for shareholders and all stakeholders and so we are hyper attuned and focused on it.
Wouldn't wouldn't dare to put odds here on 'twenty and 'twenty one Josh.
But I think that it is going to be largely driven.
On the shape of the tier two cycle and.
And and how well and how quickly things continue to improve there.
Yeah, Thanks, Craig and I appreciate that and I guess and you.
Slide and you say the colored pigments sales still on hold I guess, we've seen a tick up and M&A elsewhere.
Why isn't that progressing at this point and why is it still on hold.
Yes, I mean, we continue to evaluate whether or not and.
Ticketing bids on.
In our mind fairly valued for that business recognize as well of that in Europe. There are still very restrictive.
The COVID-19 measures that prevent physical due diligence.
I think that we are keeping an open mind.
Around that that process.
We also want to make sure that we're maximizing value as you have seen that business continues to improve.
Hopefully that.
We would be driving up.
Any bids for that business.
And we wanted to be able to demonstrate that a lot of these restructuring efforts that we've had ongoing.
And we'll be improving EBITDA. So we continue to be have an open mind there.
And and we will continue to update you.
But we look at it from a pretty pragmatic standpoint, and how can we create the most value for shareholders is that a disposition.
Is it continuing to enjoy what is the very attractive free cash flow yield.
Out of that business.
And so we'll continue to update you as we move along.
Got it thanks.
The next question will come from Steven Haynes with Morgan Stanley. Please go ahead.
Hi, Thanks for taking my question.
And I just wanted to ask on the Ti to margins from some moving pieces and you kind of outlined over the course of the call. So.
How do you think about I guess, maybe the incremental margins on that business and some of them.
All of them you can provide there would be helpful.
Yes, I mean I think that.
And maybe a way to think about tier two big picture is we expect to get back to like the 2019 volumes overall this year.
With improved margins as we get to the back end of this year.
It's been pretty clear about the type of compression we've seen through these rule primarily raw materials.
The effects. These past two years and the way I think about it is getting back to that of.
Prior March and by the end of.
2021.
We give a good sort of calibration point of view.
So the expectation.
Yeah. That's helpful and then on SG&A just between.
The I guess.
Temporary costs that will be reported on some of your new.
New business improvement programs like I guess on a dollar.
And our basis, how should we be thinking of got SG&A expenses year over year.
And I look SG&A as part of the improvement program and will come down the worst some add backs from the Covid temporary program last year.
And so I think we've made the point that you can expect the sort of the way that the delivery per quarter plays out is mainly centered on on quota of two and three I think we said and in our prepared remarks, but directionally. It's clear some of these past three to four years, even since the separation.
From the IPO <unk> has continued to attack and reduces SG&A costs and not from will continue both this year and indeed over the next.
And two years and in fact in all of.
The SG&A to sales ratio with inventories and very very competitive against any any PSM.
Thank you.
The next question will come from John Mcnulty with BMO capital markets. Please go ahead.
Yeah. Thanks for taking my question. So I guess the first one just on the on the $27 million of Covid savings that you had last year.
Do they all flow back in in terms of the cost and 2021 or do you think there is a measure of them that you can realistically hold out and how should we think about that.
Yes, John.
So there are certain savings that we're going to be holding on to.
And so and so for instance, travel is not going to be as much.
As what we had back in 2019, we will be able to hold on to some of those savings not all of that though right and we hope that we get back to.
On a more normalized business environment that.
And that allows for that type of activity. So.
But the bulk of that is associated with the Furloughing associates.
That took place really and the second and the third quarters, and so that will not be coming back and Thats why we are replacing it with these additional savings that we have through our 2020 business improvement program.
Okay, but I guess, if I look at your if I look at the slide six where you have $57 million or so of of savings in 2020, and then 65 and 2021, so whatever and increase of of about $8 million. It sounds like it should be better than that because youre not giving all of the 27 and tied to coal.
<unk>.
Restrictions and and touch back entirely yet and I am I thinking about that right.
Theres, a very small piece that will roll into the $45 million of replacement so think about all of it.
We serve and rolling off.
Okay I.
I appreciate that and then I guess the the other question would just be given given the volume recovery and it does sound like.
You are on track and maybe this quarter, it's a little bit disrupted because of the freeze, but but in general it seems like the volume recovery will put you back to kind of the 2019 levels.
I guess at that point, how much excess capacity do you have or do you have a way to kind of lever up and get incremental volumes coming to to kind of meet the needs of what looks to be a multiyear tio two cycles. So I guess, how should we think about that.
Yes, and that's something that we're looking at quite closely John as you can imagine.
We have taken some steps to.
And give us also a little bit of extra capacity and some of our facilities. Even over these past 18 months, we've been working steadily away of that.
We believe there is scope for a reasonable amount of uplift in our capacity base.
We are sort of like doing different things of different sites is going to be mainly around capacity creep on.
On.
Which borders on and one of two cases from select maybe low grade sort of brownfield. So I think we're not we're not talking about and the ones and two kilo tons here.
And I believe we will be looking ultimately the multiple of tens of.
Kilo tons capacity and.
We are setting ourselves to that because we expect to to be able to profit from the over these coming years.
Got it okay.
That's it that's what I was looking for thanks very much.
Thanks, John and Jim.
The next question will come from P. J <unk> car with the Citi. Please go ahead.
Alright, good morning, its Eric Petrie on for P. J.
Eric.
And performance additives, you noted the recovery in the auto driving 7% year over year of volume growth how much of sales of into auto and then in addition, how is the construction and market performed which is I think 40 or 45%.
Of the sales exposure yes.
Yes, Eric is going to be just digging through the to look at some of those thoughts on the first part of question, maybe I'll start while he's doing that with the second part of the question we look construction.
Construction.
A significant part on construction related activities and a significant part of our performance obviously of space and Intel.
And the treatment business and the and the United States of lot of that goes into those type of applications and frankly, that's been going really well.
And our iron and colors business.
We have focused quite of all of our marketing efforts and the coatings and plastics segment, but that notwithstanding we still pretty active and the construction segments and again.
Right across the piece, we've seen the significant uplift and and frankly construction is overall is probably still the dominant subs.
Sub sector.
Color pigments and timber franchise as.
As a percentage of the pie.
And hopefully as the.
So look of that Eric.
We can follow up with you a little bit more but when we think about products that are going into the automotive and markets from performance added is it's really showing up.
Through a couple of channels, we have some some coatings that are going in there. We also have plastics.
Exposure.
And feed into that that automotive end market happy to follow up with you afterwards, and try and narrow that down for.
And more specific automotive exposure, but.
But relative to the construction area.
Yes.
Minor.
On a minor note.
And I would think about it.
The 5% to 10% type number the Eric.
No I appreciate it.
And then secondly on on Tio too I think your margins EBITDA margins are still below 2019 levels peers are back. So so do you attribute that I know you had hurricane impact, but is that mainly related to the underperformance and the specialty tio two categories.
And then how much of those sales are down I guess, if you want to provide full year 'twenty or our fourth quarter, even just to get some sense of cadence of recovery by second half of this year.
Yes, I mean the first.
I'm presuming you mean all of that question relates to the fourth quarter, Eric is that true.
Yes, yes.
Yes, I mean look let's start with the specialty I mean, we called out special about 18 months ago.
We alerted.
Listeners and.
The community to what we were seeing and specialty and specifically textiles application segment and that has gradually improving continues to gradually improve but.
I don't think we believe in 2020, we will on a full year full year basis, our 2021 full year basis get back to the 2019 levels on a full year basis.
Depending on how all of the trajectory of that recovery I could see us being on a lot better position by the end of this year in terms of demand back to the 2021 level. So there is no doubt about it.
To the extend of that specialty segment wasn't sort of punching its full weight and the average margin count.
That does diminish because those are as you know of specialty high margin products.
Guarding the rest of the base specifically as it relates to <unk>.
Really we've had margin squeezed because of raw materials or was notably high grade ores over that period and.
We've managed to in difficult circumstances and through the tailoring program hold on to these more stable prices, which we now see reversing and we believe we can recover margin through 2021 again as we exit the year in 'twenty.
And the backend of 2021, we could expect to see the overall <unk> margin in.
And stronger shape any differences between ourselves from peers.
Predominantly.
At that point would relate to regional footprint and scale, assuming that the specialty markets of backup.
Great. Thank you.
Thank you Sir.
This concludes our question and answer session I would like to turn the conference back over to Simon Turner for any closing remarks. Please go ahead Sir.
Thank you operator, and the thank you for everyone for joining and the call today. Thank you for your questions. We hope you're all staying safe and combating the tricky challenge of the Covid.
Situation and we look forward to being out there at a number of events over the coming weeks, if you've got on the near term questions reach out to Cape failing that we'd like to see you at these events and look forward to speaking with you more about the <unk> business. Thank you very much.
Bye now.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
And then.
And.
[music].
Yes.
And then.
And.
Yes.
Yes.
And.
Okay.
[music].
Yes.
Okay.
And then.
[music].
And.
Okay.
Okay.
And then.
Hi.
And with that.
[music].
Okay.
And.
Yes.
Yes.
And then.
And.
[music].
And then.
[music].
Sure.
And.
[music].
Okay.
And.
And.
And.
[music] zone.
And then.
Okay.
[music].