Q2 2021 Venator Materials PLC Earnings Call
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Thank you Francesca and good morning, everyone I'm paid Robinson Investor Relations percentage commentary on welcome to Venice from second quarter 2021 earnings call joining us on the call today on assignment and president and CEO on kind of Thompson Executive Vice President.
<unk>.
Morning, We released our earnings for the second quarter 2021 by a press release on posted the release and accompanying slides 12 and websites on Venezuela dotcom during.
During this call we may make statements about our projections on 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 form 10-K for begin to run through December 31st 2020, our form 10-Q for the first quarter 'twenty 'twenty 1.
Also on 6K for the second quarter, 2021 and our other filings with the S. Each day for 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 on net debt you can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted on website at www dot.
And as Tom I'll talk from it.
It is now my pleasure to turn the call over to Simon.
Thanks, Kate and good morning, everyone welcome to our second quarter 2021 earnings calls beginning on.
On slide 3.
The economic environment has improved significantly since this time last year, which was significantly impacted by the COVID-19 pandemic.
We saw a strong demand environment across our business in the second quarter of 2021.
Then until delivered 43 million of adjusted EBITDA in the second quarter compared to $49 million in the first quarter of 2021 and $37 million in the second quarter of 2020.
Turning to slide 4 and now its attaining them dockside segment.
EBITDA from our titanium dioxide segment was $36 million in the second quarter 2021, compared to $35 million in the prior year quarter on $40 million in the first quarter of 2021.
<unk> fundamentals are very encouraging.
Underlying demand continues to be strong across all regions and sectors with limited supply of product in the marketplace on stabilization of Chinese exports.
Rising raw material energy and shipping costs, along with positive industry fundamentals have created a favorable environment for quarterly selling price increases.
Recovery for our specialty <unk> products, mainly in automotive and textile sectors is underway, albeit at a slower pace than our less differentiated products.
We entered the second quarter with historically low inventory levels and sales volumes constrained by production during.
During the quarter as part of a routine expect <unk>, we became aware of the need to carry on from essential repairs on our brief from U K manufacturing facility.
This maintenance necessitate to the partial closure of the facility for several weeks.
The maintenance was completed mid July and the facility is now fully operational however.
However loss production due to this outage impacted our sales in the second and first part of the third quarter.
We also perform meaningful planned maintenance at our joint venture facility in Louisiana.
Sales volumes declined 3% in the second quarter compared to the first quarter on improved 13% year on year due to pandemic recovery.
Second quarter total T O 2 average selling prices increased 4% sequentially in local currency.
Average selling prices for our functional <unk> products increased 5% sequentially with some adverse mix in our specialty product portfolio.
We are pleased with the price capture thus far on these price increases on our enabling us to offset raw material inflation and better position the business for the second half of the year.
Turning to the outlook for T. O..2 we expect to see robust demand for our functional <unk> products across all regions and sectors and continued high demand for architectural coatings and plastics with increasing demand for industrial coating applications.
We expect sales volume in the third quarter to be seasonally lower which includes maintenance that extended into July.
Energy on shipping costs arising on the feedstock market remains tight.
Therefore, we expect to see some inflationary pressure on <unk> costs for the remainder of the year.
We recently announced a price increase in all regions from the third quarter to manage on margins as we onboard raw materials energy on shipping cost inflation.
Turning to slide 5 in performance additives.
During the second quarter, we successfully completed the sale of the water treatment business to throw Alco for approximately $6 million.
Performance additives comparisons we make on this call exclude the water treatment business.
Our performance additives segment continues to deliver strong results in the second quarter adjusted EBITDA totaled $18 million, which is a year on year improvement of $5 million on a 2 million improvement compared to the same period in 2019.
Strong demand continues for our functional additives products into automotive electronics and coatings applications.
Color pigments demand was strong into coatings and construction end markets in all regions on.
Timber treatment demand has started to normalize following high DIY demand.
We expect these favorable demand trends for functional additives in color pigments to continue in the near term with some seasonality, we expect a softer demand environment for our timber treatment products.
Compared to the first quarter 2021 sales volumes increased 9% on average selling prices increased 2%, which was partially offset by increased energy raw materials shipping and logistics costs.
In the near term, we expect to see these costs remaining high and expect to recover margins from increased selling prices.
Turning to slide 6 on our cost programs.
Our 2020 business improvement program is delivering benefits in line with our expectations.
In the second quarter of 2021, we delivered incremental savings of $8 million from our 2020 business improvement program on $7 million of temporary Covid savings from the second quarter of 2020 resist giving a net 1 million benefit in the quarter.
In the third quarter, the reverse of onetime COVID-19 savings will be higher than the third quarter benefits from our 2020 business improvement program.
Estimated future cash restructuring costs remain within the range of $40 million to $45 million.
I will now pass the call over to Curt for him to comment on our financials.
Thanks, Simon, let's turn to slide 7 and our adjusted EBITDA per ages.
Second quarter total adjusted EBITDA increased 6 million compared to the prior year period.
The increase was primarily attributable to an improvement in our average selling prices in both of our segments. The increase in total sales volumes was 13% as we saw a demand recovery from the prior year period, which was impacted by the COVID-19 pandemic.
Cost of goods sold increased due to higher energy raw material and shipping costs and the unfavorable impact of maintenance downtime at certain of our tio 2 facilities, we estimate the EBITDA impact associated with T O 2 maintenance downtime.
In the second quarter was approximately $10 million from the combination of lower fixed cost absorption lost sales and increased maintenance costs.
These costs were partially offset by benefits from our 2020 business improvement program.
Compared to the first quarter total adjusted EBITDA decreased by $6 million. Unfortunately, the benefits from our T O 2 selling price increase initiatives and business improvement programs were more than offset by the increased maintenance costs, just mentioned and higher costs from the reversal of 2002.
On a temporary COVID-19 savings.
Turning to slide 8 and our cash flow considerations.
Quiddity at the end of the quarter totaled $421 million comprised of $182 million in cash and 239 available under our asset based lending facility. As a reminder, we do not have any significant debt maturities until 2024.
We delivered positive free cash flow in the second quarter of $4 million.
We continue to exercise extreme discipline as it relates to our capital expenditures and other cash uses <unk>.
Sales proceeds from the water treatment business are included within the pension and other line item.
Guidance for our 2021 cash uses remains unchanged.
We expect total capital expenditures to be in the range of $75 million to $85 million approximately $75 million relates to maintenance plus additional modest capex as we invest in some discretionary projects that support future growth.
Cash interest is expected to be approximately $60 million and we expect working capital capital to be a modest use of cash in 2021, consistent with price inflation.
We are currently engaged in that triangle valuation for our largest pension plan, which will determine the contributions for the remainder of the year.
We are optimistic that the outcome of the valuation will reduce the contributions required in 2021 and beyond and expect to have discussions complete in September.
With that I'll turn the call back to Simon for some concluding remarks.
Thanks, Ken.
We remain encouraged by the continued improvement in tio to industry fundamentals. Despite our second quarter results being dampened by approximately $10 million of essential maintenance activities demand has been strong in most major applications inventories remain low Chinese exports into Europe have stabilized and we are capturing solid setting.
Price increases from our price increase initiatives.
We continue to successfully navigate freights or on other supply chain challenges.
Looking to the third quarter demand continues to be robust for our products on our order book is healthy that we expect to see some seasonality maintenance activities initiated in the second quarter extended into July and we estimate this will negatively impact third quarter EBITDA by up to $5 million.
We are focusing on increasing our production levels, while implementing initiatives to maximize utilization rates of our current tier 2 capacity.
We expect to reach pre pandemic production levels in the second half of the year.
Our customers continue to experience the benefits from our customer tailored approach on our selling price initiatives will bring further price improvement across all regions.
Our performance additives segment continues to perform well, particularly in coatings plastics and construction and we see additional opportunities for long term EBITDA improvement.
Our 2020 business improvement program is making good progress and we remain on track to deliver the full benefits by the end of 2022 as.
As a reminder, we expect this program to further strengthen our cost structure on deliver $55 million of annual savings free cash flow continues to receive maximum focus on attention and we are addressing further steps to reduce cash uses including pension funding and the optimization of our exit from our <unk> site in park.
In summary, our strategy remains on track, we are generating savings across the business from our 2020 improvement program, reducing our cash uses on optimizing our product portfolio.
Although we expect to continue to see supply chain challenges from the remainder of the year, we feel confident in our ability to manage them. We are encouraged by the strong demand environment and expect this to continue into 2022 with limited opportunity to rebuild inventories as the cyclic stents.
And with that we'd like to thank you for your interest in <unk> and would now like to open the call for questions operator.
We will now begin the question and answer session to ask a question you may say from Saturday would want from the tender.
Because we sit on your question please.
Then just.
The first question comes from Vincent Andrews.
With Morgan Stanley. Please go ahead.
Hi, This is Steve Haynes on for Vincent I, just wanted to ask a quick question on your volume expectations for.
For 2022, and given that that inventories in the channel might be a little bit tight that you know how should we be thinking about about <unk>.
Volumes in 2022.
Yeah, I mean look I think we said in our prepared remarks, we expect to see this pattern of strong demand continue.
Through 2021, the balance of 2021.
Along the way.
We expect it to be quite difficult to see inventories rebuilt we don't see.
Inventory in our customer channels to any degree.
We know there are several supply chain challenges the industry faces are certainly we face around freight logistics.
Feedstocks and so forth.
We also can tell you that our customers are extremely motivated around supply.
Getting the necessary allocation quotient of products.
<unk> from us because they themselves have experienced many at force majeure or interruption type events. During this sort of strong recovery. So that is the back half into 2022, we're not prepared to put on a number on 2020 to expect except to say, we accept we expect to see the cycle.
Extend and continue.
Clearly.
It is our goal.
Cresol available capacity to supply that market.
And as we sit here today, we would see a year over year 2022 over 2021 production capability extending by sort of mid single digits and that should give you a sort of view of what we seen is the way we are setting ourselves up for the rest of the year and beyond.
And just to clarify that's that's up mid single digits on a percentage basis, yes.
Okay. Thank you very much.
Yeah.
The next question is from Josh Spector with UBS. Please go ahead.
Yeah, Hey, guys. Thanks for taking my question Simon I was wondering if you could square away 1 of the comments that you made about the second half I mean, I think second quarter volumes still below 2019 levels by a good margin you commented on sequential declines with normal seasonality, but then you made the comment of getting flat to talk.
Pre pandemic levels, how do you how do you get there.
With those different moving pieces.
Yes.
Yeah, I mean look I think the way, we said on our price and we're seeing again now that we expect the second half.
When we are running the assets in the second half of this year they will be at the pre pandemic 2019 level. So that's the sort of rates in the second half compared to the sort of average rate. We saw in 2019. So I think I think that's.
On a pretty clear as to how we get to that.
That statement of.
Of course.
There is some sort of moving parts in these volumes.
If you look at on numbers.
Adjusted for the sort of lost sales on outage, we had in the second quarter, which we called out then we think all sort of sequential growth is would be pro forma in line with some others.
Of course, you have to bear in mind that the second quarter true 2020, we didn't see as large a dip in our sales volumes in the second quarter loss share over the first quarter. Some of this so we see a different recovery profile year on year as well.
So I think that the.
Suffice to say that we will have we see the second half demand being strong you.
You should be able to figure out what all so production run rate from what we said at pre COVID-19 levels.
And we've sold I tried to give a view on in the in the earlier question there about how we see 2022.
Cyclic standing alone amount sort of trajectory.
Okay, Thanks, and I guess how.
How much income planning on raw materials logistic cost to increase sequentially I think you called out higher costs into the second half and you made the comment that you expect to recover that with price.
Has visibility on on the timing on when you see that price cost gap closing.
Yeah look I mean again, you've got a number of moving parts, but if we focus on a sort of direct cost margins.
Clearly we have had this EBITDA margin issue in the second quarter through the maintenance activities.
On an FCA, but you know we outrun the sole raw material increases we see further increases in the second half of this year.
It's fair to say I think that those increases are clear over the next quarter. Then they are over the full second half. So we're not prepared to sort of put a number on it although clearly there will be a significant 2021 raw material headwind does vary by category.
And what I think we are feeling confident that as we've said through the year that we would expect to see price increases as we step through 2021, so as we see those raw materials unfold. However, they plow in the last part of the year, we would expect to be looking to.
Recover that in our margin.
Okay. Thank you.
Thanks, Jeff.
The next question is from David Begleiter with Deutsche Bank. Please go ahead.
Good morning, Thanks for taking the question this is catching on Griffin.
David So first just wanted to get your thoughts on then on feedstock ore cost I know you spoke a little bit about your expectation for offsetting raw material increases on price, but I'm. Just curious if you could kind of speak to the dynamics related to on recent supply disruption with on some kind of major horse.
Tires and sort of how tight things are in terms of that feedstock availability and kind of how that could play out.
The rest of the year.
Yeah on how pleats happy to answer the question.
We set a number of times with a range of all feedstocks and I'm going to start with.
The feedstock piece, rather than other raw materials, but on the oil feedstocks, we buy.
Wide range of products across all sulfate and chloride technology platform. That's an important point because we saw eliminates rise at the backend of last year, we have seen some food the precious through this year as the Chinese block has really seen the earlier increases.
I don't think there's anything really meaningful to add on the roof tiles discussion I think it's very clear to people observe is.
What these supply points in Africa, and in South Africa, which have got various challenges.
On near term, some lasting a little bit longer so.
So I do plan to trail through what each of them on I think that's pretty well known by observers suffice to say that in the case of Richards Bay, which clearly is a very meaningful.
High grade chloride.
Feedstock supply points for for the industry at least we have a relatively small exposure to Richards Bay.
And we have concluded that we will be able to navigate our way through the current on them.
On going.
Supply reductions out of that supply point in South Africa, So I'm, not saying, it's not an easy to manage the supply chain challenge.
By looking at what we bind to each of our facilities looking on networks, we are able to withstand not disruption and manage our way through it. So that's that's a very important point.
I don't think were seeing anything from the high grade feedstock produces vis vis <unk> request the price that we didn't expect and we continue to negotiate with them in some cases, we have outcomes and others. We still have ongoing discussions on that and that will continue so I think in the feedstock block I would add that I think obviously.
B, some very difficult and tragic in many way social economic factors at play down in South Africa.
Place, while it for many years and my wife's from some average my son was bonus obviously, it's very disturbing to see what's been happening.
<unk> to happen in parts of South Africa, particularly in those parts of it.
Northern case, it and with some of these facilities are located so.
Has been challenging getting information and making an assessment of how this will play out but our assessment is that we will continue to be challenges.
In the coming months, our planning for challenges in the coming months, but we will be able to get through it.
Great all right. Thanks, Thanks for that and secondly, if I can touch on it I appreciate kind of the color on second half in terms of production getting back to a pre tax pre time on pre excuse me pre pandemic levels.
But I'm curious if you could kind of talk to your expectations for pricing and for Ti to pricing and in Q4, and perhaps the ability to kind of if there's enough sort of positive market fundamentals and on feedstock costs remain elevated raw material costs remain elevated is there a chance that you could see.
You know more supportive on pricing in Q4, maybe relative to prior year.
I think just any kind of color on your expectations.
Around that would be helpful.
Yeah to address the pricing point, we set after the first quarter it's on.
<unk> on unwelcome discussion for our customers talking about price of course.
We saw a higher per.
<unk> capture in the second quarter than the first quarter. We believe we are on course for very good price capture in all of our major markets and regions in the third quarter as well are we using a whole range of tailored approaches with customers on which recognize their specific circumstances.
We see day themselves as <unk>.
Managing inflationary pressures from a range of suppliers on passing that through to their own customers. So that's the sort of backdrop that we've seen in the first half and we are very encouraged by what we were on course for in the third quarter as well now.
As you are aware the fourth quarter historically has not always been core to which sees the most price increases because it's sort of a seasonal low in this stock build generally I.
I have to say on this occasion with all were seeing in inflation that always seeing on tightness of supply in the third quarter I think the prospects for further price increases in the fourth quarter were very good.
Great. Thanks, so much.
Yeah.
Okay.
The next question is from Matthew Deyoe with Bank of America. Please go ahead.
Good morning.
Yes.
Based on.
Benchmark moves and your exposures.
It seems like I would have guessed T O 2 price for your regions would have been up over like 10 per cent year over year, I mean, I understand no 1 ever captures the full magnitude of market moves.
The 3% growth in price year over year kind of seems a little pedestrian on AR.
You know capture basis, so I'm, just kind of wondering what's driving the differential here.
Yes, I mean look if the functional functional products grew at a 5% price increase sequentially.
Sweetheart price increases in <unk>.
In <unk> before that we expect to.
Further price increases in the remaining quarters.
This this industry as you may be aware did go through a phase where there were some very large price increases pass through in a short space of time.
Lower have unintended consequences on all that back in.
2011, 12 meant that there has been some demand destruction substitute 3 effects.
A general sort of reconciliation with our customers and unhappiness about how we manage.
Contracts between ourselves and I think that's a fair to say I certainly speak for our own company in that regard.
Subsequent to that we decided and chose consciously to embark upon.
Far more disparate range of contracts with our customers that recognized amongst other things.
Then need to manage that pass through but recognized importantly from our perspective that when we made these products. They were going to end up at the customers and not just seen as a fungible stockpile. So there's been quite a shift.
I can I hear what you're saying.
That it may appear in 1 quarter.
As a relatively low amount, but if you look at what's been happening in successive price increases and if you look at the way that this has helped provide some stabilization investment planning into our business. Then we think that the pros outweigh the cons.
Go for sort of like a short term sprint.
So conceivably.
There is not maybe what we're thinking but Chinese prices are Chinese product.
Moving into Europe, more appreciably and the contract market prices move lower.
You wouldn't see the give up.
To the extent that the market would as well you would keep a more muted.
Reaction and down tapes is that correct.
Yeah, I mean, it's an interesting example, you've you've picked up on here because you know.
If you think about how the year on year price increases will look and 'twenty 1 over 'twenty, we've done up on member in yet right, but it's going to be a pretty significant year over year dollars per ton increase through the year or for tier 2 and.
If you look at what's going on in China.
With the Onboarding of some of these inflationary costs.
You can see why.
That plus the freight logistics issue into Europe.
For Chinese producers to make the same as they were making they are having to you they would need a price several hundred many hundreds of dollars a ton above prior even even higher than it has been achieved thus far so that's why we're not seeing.
That's wholesale export.
Arrival of Chinese products into Europe on the ones that do arrive.
Chinese producers agitating for pretty high prices to justify the sort of net backs.
So the supply point so so that's another reason.
That we want to make sure we adopt this sort of like.
Full approach to our pricing.
Okay, and I guess, just 1 more quick 1 I think you had mentioned that volumes would be down seasonally in <unk>.
If I heard that correct that's the case.
Why is that I mean at the inventory in the channel is pretty light wouldn't your end market customers be using that as a time to rebuild or are you're rebuilding your own inventories during that.
Or did I just totally miss that.
Yes.
Don't see us rebuilding on road inventories in <unk>, let's be very clear about that we are going to be.
Pedal to the metal.
We are going to be running flat out fully sold during that period, and we are obviously going to optimize and maximize.
Our production capability, so thats very clear.
Historically, the third quarter.
On a seasonal decline over the second quarter now.
There is a range on a cost and some years, we have seen it has been relatively small 2% to 3% and other years, we've seen it as high as double digit double digit this year, our assessment, allowing for the factors that you described a supply chain and the like.
We think it will be towards the lower end of the decline the seasonal decline, but nevertheless, there will be a decline.
And then Matt just to underscore that point I think what youre seeing here is that we have drawn down our finished goods inventory levels. So low.
We are limited our sales volumes are limited by what we are able to produce and so we will sell whatever we can produce in the third quarter, but we don't have excess inventory that we can put into the market right now and that's what leads to that that seasonal.
Impact in the third quarter certainly the market demand is there.
Thank you.
The next question is from Hassan Ahmed with Alembic Global. Please go ahead.
Good morning, Simon and Kurt.
Hi, good morning Hassan.
I had a question around cost curves.
You know obviously you guys highlighted some of the inflationary moves we've seen on the on site and if my understanding is correct I mean, we.
Obviously saw a low grade ore.
Rising fairly rapidly you know what was it.
Last couple of months and it seems now with some of the supply constraints out there that high grade ore is playing catch up but alongside this I guess 1 of the other dynamics that's in play.
As for the Tio true industry overall, yes, we are.
Seeing inflationary moves in the price of chlorine. So my question to you is that as you sort of sit there and.
Pink true some of these inflationary moves be it you know low grade or high grade ore now the availability of chlorine you know it's.
It's a bit of an issue how are you thinking about the relative positioning.
So I'll say it basically I O to O versus go right basically I O 2 on the cost of goods.
In the near to medium term.
1 be majorly advantaged.
Cost wise over the other.
Yes, I think the way to think about that Hassan is to divide the balance there on into 2 parts.
First part is as it relates to the Chinese block.
No doubt in my mind over the past 24 months, probably plus the Chinese capacity relative to the non Chinese capacity has suffered.
<unk> disadvantage in inflation on.
Net western counterparts.
There is a very general comment.
Not going to put a number on that but we are we are seeing I suspect shifts of hundreds of dollars.
None.
Multiple hundreds of dollars a ton in some cases and.
While the Chinese capacity has had the benefit of lower indirect costs certainly on the raw materials energy and freight it's really probably.
Far end of the curve as a block and Thats an important point on it then of course within the Chinese book there'll be some higher some lower but we should be.
We should stress this greatly that if youre, a Chinese producer <unk> seen the highest rices in earliest rises in ilmenite you seen world scale energy prices, if you're producing chloride you largely bringing in an ever increasing high grade chloride feedstocks and youre seeing all other source of inflation REIT.
Precious plus all the freight this vacation logistics so.
It really has been a big loading on to the direct cost trends. So I think that part of the block has gone backwards as it relates to the western part of the block of course, it depends who you are on where you are but there will be some movements in plants.
Swapping in different places in the curve no question. It remains to be seen from our perspective, just what the chlorine in inflation really finally looks like I have to tell you I don't think we would clean up the full assessment of that yet to something we're turning our attention to.
We said in the past 6 months ago that we expected to get a resumption of the patents in the all feedstocks whereby high grade chloride materials started to come back against low grade sulfate on overtake them, we're starting to see that dynamic play out.
There will be some swapping, but frankly has done I'm not sure. We're talking about multiple hundreds of dollars a ton unless the chlorine thing really turns into something pretty pretty large.
And in that time of course as being some asset increases. So some of the sulfate process has seen some of that so I think I see a swapping between the western plot.
Plants.
On their own unique set of circumstances, but the 1 very clear comments from me and when we're seeing this in the price capture dynamic can volumes on exports from the like is how the Chinese have so.
Gone backwards in the curve as a block on <unk>.
Very helpful and as a follow up question around volumes.
Historically, we had heard about the Chinese getting fairly aggressive in terms of gaining market share in Europe, and then you know true sort of certain constraints that they themselves we're having.
No delivery.
The reliability of sort of supply became a bit of an issue and it's seen that particularly in Europe. The Chinese were losing share right.
Now as I sit there and here the volume guidance from the Western majors, there seems to be a disparity between the Q3 guidance sequential guidance that the majors are giving various day as 1 of the largest players in the industry right. So my question to you is.
You know what are you guys seeing in terms of trade flows and market share shifts is that meaningful and will that continue.
Yes, I mean look obviously, we only speak for ourselves and not willing to sort of engage in specific.
Competitors.
Like cash on but.
From our standpoint, it's very clear we are not happy in the second quarter to have to forego sales in what is the seasonal peak period. We did the right thing we do it again with the maintenance decisions we have to take.
But the reality is the market was tight and some benefits it more from us from that.
And others, I mean, I think thats clearing some of the patents in the second quarter.
But if we look forward.
We don't see the Chinese block demand in China, being having gone the trials on cold of course, we've seen some sort of normalization of demand, but there is still pretty decent demand out there. So we expect that to suck up or bunch of Chinese product, we've seen a sort of like.
On a situation to confirm what you said Chinese exports into Europe first off there was this issue around reliability availability and cost to now with subsequent inflations.
Chinese producers wishing to 70 per really going after demand pretty high prices.
On the shipping is very expensive into Europe to be able to justify the net back. So I think thats going to continue to impact the trade from China remained pretty strong and they will continue to export mining to the Asian region, we won't see a big incursion into Europe. It may even dropped back a little bit, but look it's not going to disappear as smoking.
Half, we're talking about some reduction maybe but we think that's highly manageable very.
Very helpful. Thanks, so much.
No permanent.
Again, if you have a question please press <unk>.
So on.
The next question is from P. J <unk> with Citi. Please.
Please go ahead.
Hi, Simon it's Eric Petrie on for P. J.
Hi, Eric.
What kind of EBITDA uplift do you expect over the coming years with the recovery in the specialty tier 2 volumes to pre pandemic levels.
Yes, So look I think if you take a look at the specialty part of our business. We said that the recovery is on a slower track.
We are seeing recovery.
But we are not back to the.
Pre pandemic levels on I don't think we're going to be back to pre pandemic levels. This year now with 5 and look at things. So the earliest juncture I think we could expect to see that is sharing during 2022.
I think we've said in the past that it's a very meaningful significant and important part of our business, but it certainly isn't the largest part of our business and when we're getting these types of unit price uplift in the functional part of the business.
The volume you can see pretty much that it's going to be that that drives the earnings uplift.
So really the question is about the cycle rather than specialty and we can see continued to believe that we are in the earlier part of the cycle.
We're going to see further development of that and next year, we're going to strength in our earnings profile through into 2022 at the same time that we are working on our cash uses so that's that's how we're seeing our mental model Eric that helpful.
Okay and secondly.
<unk> margins declined 100 basis points sequentially, how should we think about that in the second half Kevin.
Seasonality that you talked about the resumption of production at <unk>.
Higher raw material costs could you just break that out in terms of how do you see flat pretty stable or.
Down slightly or how should we look at that.
Well I would expect to see <unk> higher than the first quarter based on the fact that we're going to have.
The price increases and we're going to have we're not going after the FCA effect, which so temporarily took us down in the second quarter. So on the way I would think about it as third quarter being opened up against the first quarter on that.
The fourth quarter, obviously, well, that's a little bit further out but.
As I said earlier in my remarks, and answers, we still feel strongly that thats likely to be price increases in the fourth quarter 2 so.
Hopefully that can help you there.
Great. Thank you.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Simon Turner for any closing remarks.
Well. Thank you everyone for joining the call and thank you for your continued interest in Venezuela, and we look forward to speaking to as many of you as we can throughout the quarter on the upcoming conferences, so any questions or clarifications. Please feel free to reach out to <unk> in the first instance, with any any points that you would want clarification on <unk>.
You very much.
The content is now concluded. Thank you for attending today's presentation you may now disconnect.
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Yes.
Yes.
Mhm.
Okay.
[music].