Q3 2021 Olin Corp Earnings Call
Good.
Morning, and welcome to Olin Corporation's third quarter 2021 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero.
Following today's brief opening comments, there will be an opportunity to ask questions.
Question to ask a question you May Press Star then one on your Touchtone phone.
To withdraw your question. Please press Star then two please.
Please note. This event is being recorded I would now like to turn the conference over to Steve Keenan Olin's Director of Investor Relations. Please go ahead Steve.
Thank you.
Tom Good morning, everyone and thank you for joining us today before we begin let me remind you that this discussion along with the associated slides and the question and answer session that follows.
Include statements regarding estimates.
Expectations of future performance.
He is not that these are forward looking statements.
And that actual results could differ materially from those projected.
Some of the factors that could cause actual results to differ from our projections are described without limitations in the risk factors section of our most recent Form 10-K, and then the third quarter earnings press release.
A copy of today's transcript.
And slides will be available on our website in the investors section under past events.
Our earnings press release, and other financial data and information are available under press releases.
With me this morning are Scott Sutton, one CEO Pat.
Pat Dawson President epoxy.
Demand going forward.
Quite often life products and vinyls.
Brett Sawyer President Winchester.
Jim Bottleneck Olin C O O and Todd Slater Olin's CFO.
Scott will begin with some brief remarks, after which we will be happy to take your questions I'll now turn the call over to Scott.
Thanks, Steve.
Hello to everybody.
Pleased to report the Olin team has once again proved to be the most unique and agile in the industry and meeting the clear expectation of our shareholders.
Yeah, and I just have to say that this solid performance by the complete team sets me up to be able to focus.
Items that drive our future, which are enhancing our contrarian value model, turning a ratchet on undervalued products, partly to grow accretive capital allocation.
Building out our interlinked matrix of activation not growing.
Shooting sports participation in lifting all when people. This is a company that is focused on continuing to grow adjusted EBITDA and coupling that with balanced capital management to deliver more than $10 of earnings per share in the near future.
So I'll make some.
Some of your commentary on a few slides and get to the Q&A quickly.
2021 is expected to be a solid result for OLED for the reasons shown on slide number three while the longer term fundamentals of demand that grows faster than supply is starting to be exposed here in.
Some brief 21, our leading actions to get a higher value for our scarce resources is proving to be successful current highlights that success are that we continue to exit business that was based on non negotiated pricing along our product chain mix with the intended.
<unk> 'twenty act from purposeful settings of our interlink matrix of activation nodes start accelerating the value capture epichlorohydrin and drive an expansion in the shooting sports participation with our shoe United movement.
While there may be some end of year holiday slowdown.
Which are really supply driven not demand driven and some seasonality that result in a sequentially flattish fourth quarter result, we still expect 2022 to exceed 2021. The reason somatic for better results in 2022 is shown.
Slide number four.
The minor reason in our thematic it was that the previously mentioned demand growth versus supply growth dynamic just gets better and better across all of our businesses more people are enjoying shooting sports demanding cleaning wind energy and expanding there.
One on staff.
The major reason in our thematic is that all of olin's activities are designed around a foundational cultural principle of only selling into value.
We know who we are.
In October we took the decision to close some more.
Their whole argued assets and simultaneously use other existing global asset and product liquidity to grow olin's value as our own E. C. You assets or getting right sized we are a global buyer of E C use to satisfy our higher valued.
<unk> demand.
Even though we have grown earnings for five consecutive quarters and delivered a levered free cash flow that is approaching 20%.
We still must show that our performance will continue to improve but maybe more importantly, we must demonstrate our ability to.
Product or uncertainty and volatility slide number five as an illustration.
Olin has three substantial businesses each with a meaningful contribution to segment earnings for reasons that we previously discussed the Winchester, which is shown in red on this slide consumer in.
Managed business offer solid and sustainable growth.
For reasons, we will discuss in just a moment.
Hoxie, which is shown in green on the slide engineered materials offer differentiated growth as we expand margins in that business.
Chlor alkali products.
Dentals industrial essentials, our largest organic and inorganic growth opportunity. We expect the chlor alkali segment results to be slightly volatile across a brief transitional window. When we have a model profile shifts between the relative strengths on the two.
And by size of the E C U.
We think of the net company volatility as ripples on a defunct.
Waves on a shallow lagoon, we should control our destiny here.
Continuing with the theme of good fundamentals on slide number six our perceived.
Choose World Chemistry has new world application in value I won't read all these megatrend multipliers as I'm sure they're familiar to you, but instead jump to slide number seven and hit on the differentiated growth profile of the policy.
The Pax sets itself apart from other engineers.
Older materials by offering nearly non Substitutable performance almost every end use category is growing faster than global GDP.
Consider the outlook for more and larger wind turbines for clean energy.
Consider the outlook for electrical laminate for the.
Engineered mobility trends and broad electrification trends consider the outlook for infrastructure expansion and replacement and so on.
Even though we recognize the value of this business in a park see resin sales and in our policy systems sales the value drivers.
New epichlorohydrin, and we will be expounding on our globally, leading epichlorohydrin position in future earnings calls.
We expect it won't be long before our Pakistan business delivered greater than $1 billion of EBITDA and carries the same.
Really to apprise value at all Oh inquiries today.
More representative of a highly engineered materials company.
Finally, I will close on slide number eight we're going to start talking more about E. P. S in conjunction with.
EBITDA and segment earnings.
Are advancing in our evolution and expect our activities and debt reduction and.
Refinancing share repurchases and M&A to be big contributors are forward value and that value shows in EPS.
No doubt.
And in a majority of our forward discussion will center on leadership or lynchpin products, great supply demand fundamentals.
Our lane and lift in Olin people, however, new ways to create shareholder returns are evolving for Olin and help us.
Our above $10 of earnings per share.
So that concludes my opening comments and Tom we're now ready to take questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on a touchdown.
If you are using a speakerphone please pick up your handset before pressing the keys.
Your question. Please press Star then two.
This time, we will pause momentarily to assemble our roster.
And your first question comes from Hassan Ahmed with Alembic Global. Please go ahead.
Morning.
Scott.
Scott wanted to touch on some of these are natural gas price escalations that we've seen not just in the U S, but globally as well. So you know in the U S side to say do you know if you could sort of talk through how you guys have dealt with and you know what was a pretty tricky quarter and continues to be a you know.
Tricky for Q.
Gums off the hikes, we've seen in natural gas prices and if you could also talk about you know what you guys are seeing in terms of the cost curve impact with natural gas price escalation in Europe, and the biomarker data month, we're seeing in China as well.
I mean sure you know for US we have a couple of strategies to manage the local issue. I mean, one is you know we have a pretty strong hedging program, where we have some amount of it hedged out into the future which helps to protect those you know the rest of it is absolutely 100%.
Yeah, and you know product pricing and every day, we get more ability to recover that on an instantaneous basis as we can get out of some of these contracts, but keepers in handcuffs I think the more important one is may be your second one I mean rising global energy cost is actually.
Coverley, a plus for Olin and that's because trade flows get more expensive and trade movements get more volatile and that just fits right into our model of lifting the value of these olin scarce resources.
Very helpful and as a follow.
Scott.
So obviously now you're guiding to net debt to EBITDA being around one time by the end of the year and you know it was very helpful. Talking about you know 10, plus dollars and EPS and you touched on sort of share buybacks and M&A and the like as being meaningfully contribute as you know as we look at 2020.
Actually with the balance sheet now as as clean as it is how should we be thinking about capital allocation.
You know if you could dig a bit deeper into the thought process with our with regards to sort of meaningful share buybacks as well as M&A.
Yeah, Yeah, I mean sure look I'll cover.
Todd will cover most of it but.
Good bit of that is going to go toward our growth programs and I suspect maybe there'll be some other questions just give us a call and we're happy to talk about how we go out and grow the company. So that's certainly a part of.
One out I mean, Todd do you want to cover the rest.
You're right aside as we delever the balance sheet that does provide a lot of financial flexibility to accomplish the structuring and parlaying that we've been talking about and Scott just reference going forward, we would expect to target in that 40.
That range of our Levered free cash flow and shareholder rewards that includes the dividends and opportunistic share buyback as we go forward.
Very helpful. Thank you so much.
The next question comes from Mike.
The person with Wells Fargo. Please go ahead.
Hey, good morning, guys nice another great quarter, Scott I'm, just curious it sort of feels like given how well your results are coming in this year, you're sort of in the ninth inning of the transformation.
But you sort of talked about a lot of things that can continue to improve.
Cisco.
Just curious where you think you are saying you only been here a year, it's been a good year. Its just you know what else do you think it could be done to continue to improve the company.
Yeah, Hi, Mike. Thanks, Yeah, I mean look I, what I would say the team here at Olin has.
Long run way in front of it I mean, all we've done so far has put a bit of a disruptive model in place, which is highly complementary to the fact that for the foreseeable future that demand grow actually grows faster.
Ofer band band supply growth.
There's a lot more to come beyond that I would say if you think about business by business a little bit here. We are in Winchester about embark on a shoot United program to go out and grow the number of people.
After all doing sports shoe shooting immensely and Brad will get an opportunity to talk about that hopefully later in our call in part C. You know some of the systems and some of the high growth areas like mobility that we provide are starting to take off maybe more importantly.
People, we've set ourselves to the point, where we were a buyer of easy to use out there and there is global product and asset liquidity available and we're just getting started on that program of accessing that to go out and grow our business and then of course, we will.
You know implement that with inorganic acquisitions, so that's sort of how how how the runway shakes out.
Got it and then as a follow up.
You know the first half your you know a little bit about $500 million in EBITDA second half here and there.
700 million.
Collins.
When you think about the volatility or maybe just the you know the.
Kind of the Delta between the quarters is that 500 to 700 million sort of.
A range that you can keep your EBITDA within in and is that sort of the potential for next year as we think about doing better.
Well I think the reason might that you may you know you see those differences as well.
We're just getting good at practicing in our model and every day, we continue to get more knobs that are under our control you know reference some of the remarks, we made about.
I've seen some of our our materials more open and freely negotiated as opposed to being tied to trade indices. So you know the reason that that early volatility has been there and it's kind of been a one way up volatile you know volatility there is just because we're getting better at.
Gambling.
Our model I think when you look at in the future of course, we're saying that 2022 will be better than 2021, and there may be some some time periods, where we have to shift which side of the E. C U sets our market participation.
Annexation because today the weak side is still costing.
Got it thank you.
Sure.
Yeah.
The next question comes from Alex Yesterday with Keybanc. Please go ahead.
Thank you.
Hey morning, everyone.
You mentioned that the renegotiations women's lives.
Can you provide any details.
What percent of your merchant business is up for renegotiation, but also maybe.
Size up the merchant that'd be business as a percent of revenue.
For some of your capacity.
Yeah. So I think I heard your question I mean at least on the chlorine side, we continue to make.
Progress you know getting that opened opened up and we you know we expect at least by 2023, but that's essentially.
We opened up but you know we'll have to see how discussions go over the next the next quarter or as we have.
Not really sure you know just how big are at the business is in relation to the rest of it because it's not that important the size of.
<unk> business. What is important is that it is the linchpin that it sets value across our whole epocrates chain and no. One has focused every day on lifting the value of that scarce resource Pat would you have anything else to add about epichlorohydrin, Yeah. I think you know the other.
Do you have to keep in mind about Etsy is we have a lot of flexibility.
Between the merchant market and our captive production, we have a we have multiple knobs on lapping that are that we can activate to bring more value to that whole.
Popsy value chain.
Okay understood. Thank you for that.
Could you discuss harling activity for three D C as well what is involved here and how would you describe this opportunity.
Yeah, Yeah, I mean, the dominant I'll make some comments on parlaying on E D C.
Just on the broader topic I would just say, we're continuing to be successful in developing that program and if you think about many of our products chlorine caustic bleach EDC part C and epichlorohydrin in the third quarter, we had success.
Okay parlaying activities around all of those Tommy and do you want to talk about EDC sure thing Scott you know from an EDC standpoint, you know we have a large presence in merchant E. C of course, we can touch you know reached customers all over the world with our physicians in the U S Gulf.
We.
Saturday ended our army Harley network, there as well because we have customer demand now you know in a in Europe Africa.
You know, obviously, India, South East Asia, and North East Asia, Latin America, and our ability to complement our own supply with suppliers.
Have expanded you know happens to be available at certain opportunistic times in the world just allows us to get to be able to bring that product closer to the customer and us and realize some value there from the ability to help them turn that material into their PVC and used books disturbing deals are going.
Market, so our ability to get closer to customers with our Arlington network. All of that is that translates into into value for all in here that we've realized.
So going forward.
Thanks, a lot.
Yeah.
[noise].
The next question comes from Kevin Mccarthy with vertical Research partners. Please go ahead.
Good morning.
Scott you've talked about and epoxy segment margin goal of 30% in the past and this morning, I think you threw out a $1 billion is.
EBIT goal for this segment.
Segment.
What do you need to do in that business to get there from here what it what are the two or three sources of incremental improvement you know recognizing that the business has already come a long way.
You know what.
Additional runway do you see in 'twenty, two and beyond for for upside.
Oxy.
Yeah, I mean, we just need to keep the activities going that we've already started but you know Pat can expand on those a little bit yeah.
Kevin.
It's hard to see I would say is is really at its heart is at the right time at the right place and.
And what I mean by that is if you look at that the Megatrends and you look at the demand.
You know for our policy in these different segments, you know right place right time right. So when you look at composites and light weighting.
Our paas enables that you look at land when systems Decarbonization.
Right place right time.
Electrical laminate E mobility.
And he said that are used in E batteries are pack C. Right place right time tell I think what you're seeing is we've got the infrastructure in place we've got the commercial organization in place.
And really we can go across the whole globe.
Around these applications.
<unk> value, where we see value can best be extracted the cabin I think we're in a great position to be able to complement what we have already been doing and to keep building.
Adding value around a lot of these mega trends that play right in the wheelhouse of of how a proxy brings value to the market.
Okay. So it sounds like it was strategic and more just.
We're riding the sources of demand improvement that you're at one time.
Well I'd say strategically make no mistake that.
That epichlorohydrin in the scarcity of epichlorohydrin in the multiple knobs. We have there is as much more strategic going forward than it has been in the past.
And I would say that we even have opportunities and aromatics and what we do and it's an all in acetone acumen to bring this a contrarian model into place so that could.
It is strategic to our future as well.
Understood and then secondly, if I may Scott I just wanted to ask you about slide eight this is something you've talked about you know in the past breaking the cycle pattern. Just was wondering if you could put a finer point on it I appreciate.
The analogy you used.
The waves on Laguna ripple.
Ripples on an ocean and so forth, but even specialty chemical companies sometimes suffer.
One year.
If you were to look out over the medium term three to five years.
What what would it take to cause a down year in your mind for Roland as it.
Shift.
Could be there besides the stronger side of that you see you or an economic recession or something else.
That would precipitate a cyclical.
Change for the company.
I mean, even just going back to your first question, where you know you would kind of Saturday to just riding the wave I mean I would.
From weak mistake about it I mean, we're heavily focused on value over volume and if theres any way if it's a ways that Owen is creating so.
You're exactly right on number on <unk>.
Number eight there were trying to reference that this is no longer a cyclic business there was a cyclic.
No business, because you know Ole and made it a cyclic business and we've completely changed how we're doing doing business. Now. This is structural work that is going on and not only that there are structural dynamics that have changed and are in the marketplace.
Great.
We have a reasonable view out five years right.
Every single place, we look demand growth exceeds.
Supply growth so could there be down quarters that is not.
Possible, but I do want to reiterate.
We have to shift which side of the C. U is setting our market participation.
Relatively short term items that you may or may not see that is not a year long type of ship we've taken the business.
<unk> from being a little bit slower to being very nimble to go out and make sure that we do what we need to do to make sure that we get significant value from Owens scarce resources.
Thanks, so much that's helpful.
Sure.
Yeah.
Yeah.
The next question comes from Frank Mitsch with Birmingham Research. Please go ahead.
Thank you and congratulations on another solid quarter.
You made an announcement yesterday about shuttering some capacity in our Alabama could you.
You're talking about the decisions behind that and.
Where do you think this leaves the chlor alkali market and its supply and demand balance.
Yeah, Yeah. Thank you Frank and we you know we won't comment on the market. The decision was strictly driven by the fact that you know.
We're still undervalued.
There and we're just not going to sell into the into low value Mark I mean, I can tell you where it leaves Owens supply demand balance and that is that is in a place where we're positioned to go out and you know I E C use at the.
Time to support growth in our downstream derivatives and will likely be a smaller participant in the merchant market going forward, particularly in those places where we're gonna be compelled to continue to supply through next year on trade indices.
Right you know actually don't reflect the market value of the product.
Okay Gotcha Gotcha.
And as I look at slide 12, the issue profitability.
Contribution index.
It is an investment bankers dream I mean, it's just been absolute hockey stick.
Where.
Where do you see that going into it for Q.
In 2022.
Well you know every day, we're focused on on lifting value and that is just the one.
Measurement.
Everybody in the in our company together, so you know where we're focused.
Just on continuing to move it up again I want to reiterate that there may be a quarter or two where we have to draw a flat spot in it to make sure of where we're positioned right continues to lift olin's value, but yeah. We will continue to move it up I mean Dom in in your businesses, what do you think about fourth.
Yeah sure I mean, we certainly can see a continuation of the trend where the flooring side remains relatively stronger and of course is as Scott mentioned it.
Contracts that converted away we highlighted on our first slide we shifted more contracts away from.
Index to really negotiate it.
There is a step up in value there that we're achieving as well. So we continue to see that momentum play through as flooring remains strong the rest of the flooring portfolio and in our in my division as a complement to Pat's point on an audio paci sites continues to we continue.
Do you achieve value and of course, you know against the policy side has has improved there's certainly some some increasing areas of fitness and we spoke about the energy issues that are disrupting those trade flows.
So we're seeing positive move up as well, but you know net.
Net net the easy you continue to move up as reflected in the PCI.
And we expect that to continue.
But corrine you know certainly continues to drive the stronger side of the model.
Terrific. Thank you.
So much.
Okay.
The next question comes from Jeff Zekauskas.
With J P. Morgan. Please go ahead.
Thanks very much.
It was I was looking at your cost of goods sold.
I think it was 168 billion.
And in the second quarter It was 1.71 billion.
Why did cost of goods sold go down sequentially.
I would've thought your raw materials would have been higher.
Did you simply ship lower volume is that the effect or can you explain that.
Yeah, Yeah, Hey, Joe Yeah, sure I mean look it's at least in one of our businesses you know we had some amount of lower.
Lower volume so if you remember and at the end of the third quarter, you know hurricanes other logistics issues and so forth.
You know slow down falling volumes a bit there. So that's probably the main driver Todd is that about right. Yes, that's absolutely the case I mean, we come.
Within the deck, you didn't see Chlor alkali products and vinyls volume was down sequentially really that was the result of the other.
It resolved with Nevada. So that's why you saw lower cost of goods sold.
Great.
You know in your.
Comment or a third slide you said shifted another 10% of merchant chlorine to freely negotiated.
And now less than one third of volume remains under index.
So if all of that vault the remaining volume.
Under index is now.
You know what some.
Market contract, what's the annual economic effect of that.
Oh, Yeah I would just.
No.
Say without trying to itemize product by byproduct that you know the.
Yep.
Packed up getting more of our merchant chlorine out from index is important as a more important part is that it lifts our whole portfolio of chlorine derivatives now if we were to get the remaining third out from under index. It. It would have you know.
A fair economic impact to two OLED, but I'll just say, we don't expect to hold on to that complete one third of volume that remains under index because some of those customer segments aren't gonna be receiving you know coring from Olin because we're stuck.
Turning to supplies for one more year at some some value that isn't representative of the market. So we'll lose some of that volume.
Okay. Thank you very much sure.
Okay.
[laughter].
The next question comes from Josh.
Josh Silverstein with Wolfe Research. Please go ahead.
Great. Thanks. Good morning, guys just wanted to go back for the cause.
Capital allocation discussion from before obviously this year was a big year for debt reduction can you just talk about maybe the capacity for buybacks next year, what are you thinking about.
Still a minimum amount of cash on hand versus debt reduction and then what would be left over for potential M&A versus buybacks.
Yeah, I mean, you know Todd Todd will expand on this a little bit I mean, what what I would say to set the stage for his explanation is that you know right now.
For buying back stock represents.
An immediate return of about 20%. So you can expect this to be a significant part of our forward program Todd.
That's right really if you think about 2021, our first priority has really been to you.
Pay down debt.
We are targeting $1.1 billion of debt reduction. This year, you know so far it's about $850 million through the first three quarters, we've taken a lot of that high cost debt out of our system now.
We will plan to reduce debt further here in the fourth quarter, so that would get.
Get us down to about one times range.
Ultimately, we were probably targeting gross debt and a two and a half billion dollar range you know check.
Answer your part of your question, Josh You know, where we're really targeting gross debt is about two and a half range and as.
And we're gonna earlier, you know we're going to focus on.
O R.
Financial flexibility to enable us to do structuring activities, which would include.
M&A as well as parlaying, and we're targeting 40% right in that 40% range of our Levered free cash flow.
As we sat word shareholder rewards, including the dividend and buybacks.
Got it that's helpful. And then just on the two and a half million. Your EBITDA level. I mean this was previously suggested that can be done in a few years from now is that the.
The new board to thank them and where do you think given the portfolio.
Right now what could that do.
It would be to the upside.
Well I mean, we'll we'll keep working to move.
I mean this year, we will look at pretty close to that pretty pretty obvious I think next year. We are absolutely you know said.
Full lift EBITDAR over this year, we're evolving to also setting targets based around E. P. S and so we have a fairly short term goal of $10 a share and we will look at you know where we go from there.
Thanks, guys.
Yes.
Thanks.
The next question comes from John Roberts with UBS. Please go ahead.
Thank you it seems like the Dow contract is still one of the largest opportunities going forward.
Contrary.
I'll open up at one or does it open up in phases over time and if it's the latter could you talk about how far out the longest part of their contract goes.
Oh, you know I won't give too many specifics on a range and that's you know with a particular supplier.
Our customer.
But what I will say because it's in the public domain already and it is a material item is that you know our major E. C. You supply that we're doing at cost ends in 'twenty.
2020, five and so that'll be options and each and every option will be cash accretive to all of them.
Okay, and then my son earlier.
Okay.
Yeah.
Sure.
Again, a lot of that Chinese.
Okay.
Thank you.
Many export.
Thank you Liz.
Yeah, I'm sorry, I missed the question is just when went quiet I don't know whether it's on your end or are in.
Yeah.
If anybody is still there.
Hey, Tom can you hear us.
Yes, I can hear you would you like to go to the next question Yeah for some reason, we just lost it.
Yes, it sounds like his line disconnected.
Alright. The next question comes from our own Viswanathan with RBC. Please go ahead.
Great. Thanks for taking my question Congrats on the continued strong results here.
So just wanted to ask are you know are on your comments that 'twenty two will be better than 'twenty one.
You know your slide 13 has positive price momentum in across all of your business is pretty much. So assuming that you know continues just given your comments that you can use to focus on value.
Do you expect each of the segments to show higher EBIT.
EBITDA or how should we think about them you know that comment in the context of the segments. Thanks.
Yeah, No I think that's that's fair each and every segment should show better results in 2022, where I would say up to.
2021.
Great. Thanks, and then.
Just another.
Another question on the cost curve are you know you obviously moved up.
The values here on the E C U.
How much of your capacity would you would you say is still kind of are not up to your standards on value and is there anything that you could do to change that I mean is there any deeper.
Bottlenecking or I know you have the 100 million in productivity, but.
You know anything that you'd you'd focus on to think about changing that situation and again, how much of your capacity would you say, it's still maybe it could be ready for shut out. Thanks.
Yeah, I mean, when you think about when you think about it.
Pasadena standpoint, you know I would just start out in 2025, right clearly 30% of our capacity you know gets zero return today. So that's certainly a big chunk. If you take if you take that out.
Still have some some work to do it it's not necessarily a cost issue. So I mean, I think our manufacturing and supply chain teams have done just a great job driving productivity and flexibility and our assets it's more still.
Still a market value issue.
And while a lot of our derivatives are starting to get.
Get to the point of reinvestment economics, if you look at what we sell into the merchant market. So I'll take the E C U elemental chlorine and caustic.
We should go into the merchant market you know theres still some work to do there to lift those up to a point that we'd get somewhere close to reinvestment economics.
Thanks.
Sure.
[noise].
The next question comes from Eric Petrie with Citi. Please go ahead.
Thank you and good morning, Scott.
<unk> closed roughly 850000 tons of <unk> capacity. This year just a question on strategy do you expect a part of an equivalent amount or how.
How do you see that going forward.
Yeah, you know I don't think you know, let's maybe Tommy I'll answer this question.
Sure I mean, you know from a part of these temporal we still see that it's a long.
Pulling that volume that's out there is liquidity out in the market, we believe theres still pools of data available.
Globally that we can.
We can leverage of course is these trade flows do become disrupted.
The cost impact other areas, where we're going to capitalize on that with our cost position.
But we also see it as we look at these mega trends and the demand that is clearly growing across.
You know that fully meet our easy to use and derivatives hardly E to us are going to play a bigger and bigger role in our ability to bring those easy use indoor system allow us to be more flexible with Halloween ribbon tied our chlorine across areas like part b across.
Our vital space or cross over intermediate organics, it even back to the elemental flooring. So we have opportunities here to flex our own merchant chlorine derivatives.
And all the other easy use into the system as well all with the purpose of lifting and enhancing the value would be to use into the customers that we serve.
Helpful. And then on the one third of volume in inquiry and that remains under index, how much of that is related to tier two in the market.
How does that step change in the next year.
Okay.
I mean look you know.
I would just say part of it is you know it goes into.
G I O O two and you know that's some part of the market, we're not gonna be serving out in 2020 free and so part of the volumes that go down are related to this shut down that we just announced.
Pounced and Macintosh, Alabama.
Thank you.
Yeah.
Next question comes from Steve Byrne with Bank of America Merrill Lynch. Please go ahead.
Yes.
You you have this slide that illustrates the relative value between chlorine and caustic and I really.
I appreciate the concept.
But you're you're boosting too complex too.
We regret that.
Corrine value was not a data point on here, but like.
We are very wide.
Thank you.
That'd be for example.
Perhaps a year ago might've been at the bottom end of that range value to you.
Corrine is it fair to say that it is now among the highest value in markets for chlorine for you.
The reason I ask is.
Is it getting to the point, where you think there's risk of of capacity expansions.
<unk>.
In the market either.
Petr goes or customers are back integrated.
Yeah, Thanks, I mean, yeah.
A lot of chlorine and chlorine derivatives have moved up I would say, we have a long way to move because it's certainly not at the high end of that that range today could it move up to a point, where it supports reinvestment economics. It certainly.
If possible do we expect to see expansions out in the future whether that be or even on the EU side of the business. Yes, you know, we expect to see some things get announce because otherwise the world's not going to have enough of.
Scarce scares products once those expansions are announced.
I'd keep in mind that there is still likely a four year gap, where demand continues to grow faster than supply. So the only way that changes if there.
There is if there are just multiple announcements multiple expansions that continue over the next 10 years.
And then when we look at.
You know pricing on some of these chlorine derivatives like PVC room since E D C.
Both of them have ripped, but you got about maybe 60 soon a pound difference between them is that fair to you that downstream T V C.
Much of emerging Bruce with E. D C or is that compelling to you to want to move in that direction.
Well.
You know I mean, where of course, the largest merchant supplier of E. D. C. And you know that's a material that we moved up in value I think the recent movements of P. B C. So I'm going back maybe across a six to nine month window. It went up with like there were some risk of it coming.
Down where by the way we had a number of activations around E D C.
Make sure that at least Owens portfolio did not go down then you saw P. D. C move move back up I would just say that I think we have some some room there clearly the fundamentals for PV.
See what good longer longer term and you know theres a margin lift that P. B C gets over over a D C and I think we're positioned to take advantage of that.
Thank you.
Yeah.
[noise].
DS.
The next question comes from Matthew Blair with Tudor Pickering Holt. Please go ahead.
Hey, good morning.
Congrats on the great results I wanted to circle back to the capital allocation, but based on your 2022 EBITDA guidance.
It seems like you should be able to generate.
At least $1 6 billion of free cash flow next year, and you mentioned, 40% to shareholders that'd be about $600 million.
That remaining 1 billion. So we think of that as dry powder for M&A, either like transformational M&A or bolt on M&A, because it seems like a pretty significant amount.
No I mean, if you look through the numbers certainly are that that far off so I mean, you're you're exactly right. I mean, we'll have options as part of that part of it is and and acquisitions are part of it is also to support you know our parlaying activities, where we'd go out and use globally.
Product and asset liquidity, because we will have some needs for various logistics capabilities as we do that that's really low capital. It's very light touch in terms in terms of capital, but I just wanted to complete the complete the picture.
Sounds good and then previously yeah, I think it was hard to either sell or spin Winchester.
Just due to either like valuation or taxes, or maybe a mix of both.
You know in today's environment. It seems like ESG is a bigger part of the picture So has anything changed in.
I guess could you just provide an update of how you see winchester fit into the portfolio over the long term.
Well I mean this is a great business for us it still has a lot of a lot of ways and you know all my ask Bret to speak here in just a moment about our chute United movement.
But you know if you were to break break the business down just just a little bit.
You've got 55 to 60 million people doing sports shooting now and it's the fastest growing youth sport really in the country now so and now we've got this program that we're about.
Our rollout to go out and increase the pie Brett do you want to talk about <expletive> in item, yeah, and just to add a little bit to what Scott said 60 million people that were anticipating now.
Really participate for the main reasons be with family and friends.
The addressable market is over 200 million people of all demographics.
Graphics and ages, you know what what shoot United is a sophisticated communication strategy to introduce all those fun facts and great things about the recreational shooting sports to those 200 plus billion.
Okay. Thank you.
Yes.
Next question comes from Roger Spitz with Bank of America. Please go ahead. Thanks very much following yesterday's announcement, how much diaphragm capacity do you have left.
In short time he sees.
Yeah, Yeah, I mean, we probably wont quote an exact number but what I will say is you know almost half of our capacity you know it used to be the diaphragm based and you know with that announcement, we have totally taken out about 800.
5000, something like that you see at times.
So we took out a good chunk of it but we still have a lot.
Okay, and then can you comment on corn value.
And volumes into bleach is it starting to fall versus other derivatives as we move out of the pandemic.
Or is are people still reaching all the services they can touch.
This is Amit let me take that question and thanks, but clearly we have seen bleach values move up.
In concert with the with regard to move it across the us you'll bleaches also.
<unk>.
Yeah.
A scarce product.
<unk> purchased bleach producer, we clearly have seen the dynamics play out of chlorine and you know each.
Your values have moved up in in bleach, but clearly much more room as you know bleaches use into disinfectants and.
Water treatment areas, you know continues to grow and it would be more value didn't need it and so we're we're still poised to you know with a with a long runway in front of us to capture value for this specialty product.
Some properties into great markets.
Thank you very much.
Thanks.
Again, if he would like to ask a question press Star then the wanted to join the queue. Your next question comes from Michael <unk> with Barclays. Please go ahead.
Great. Thanks, Good morning, guys.
Just curious first of all I mean, you touched.
Touched on inorganic or acquisition opportunities can you, maybe just flesh out what you're looking for there and just help us with them either in terms of size are you looking for geographic or new product.
Expansion.
It's a sense of kind of what you're going after there.
Yeah sure I mean, if I had to sum it up I would say, we're looking for assets that really complement our model. So I mean that that opens up a lot of possibilities you can imagine that we're able to acquire E.
C U K facility, although that may not be necessarily north American focus there's a lot of opportunity for us to expand into other geographies. Another complement to our model would be you know derivatives just like we have a coronary.
Coordinated organics derivative chain and we have an epocrates chain and we'd go part of a way down vinyls. There's other chains that certainly feed off elemental chlorine and those would be great complements to our model.
Whereby we get a lot a lot more knobs to turn across our matrix and get value back just ton one that we have today. The other thing I would say, it's also not impossible that we discover that some of those things that have a direct complement.
To our model that actually our commercial attitude might apply to other businesses as well that we might acquire so we're thinking about all of those possibilities.
That's great and then maybe just for following.
Digging into the epoxy strategies.
If I look at slide seven.
Wanted to talk or discussion around engineered solutions.
Is it fair to say that you're trying to kind of ultimately sell them lots of them I would argue more commodity liquid epoxy and tried to push it more downstream into kind of hard to.
Nurse epoxy dispersions things like that is maybe just flush out kind of where the strategy for epoxy that'd be great.
Yeah, Mike This is Pat and you know.
When you look at their policy value chain.
Yeah, we make money across that whole chain and it's very.
Three interlinked.
How we make our money there. So you know with our epichlorohydrin like I say, we have multiple knobs on how we monetize that abbvie, whether it's selling into the merchant market.
If we get value there or if we back out of the merchant market and we take that and convert it more to liquid epoxy.
She ran and to monetize it or we can take that liquid epoxy resin and further convert it to a solid epoxy resin or other converted resins are or we can take that liquid epoxy resin and system of ties it into things like when systems are formulated products or blend. So you know, Mike we need that strategically.
With that whole that whole chain to be able to have the maximum value over volume choices. That's really what we've been doing and will continue to do in the future.
Great. Thanks.
We need.
As there are no further questions. This concludes our question and answer session.
I would now like turn the conference back over to Scott Sutton for any closing remarks.
No I would just say thanks, a lot everybody for joining today.
Appreciate it.
Yes.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Thanks.
Okay.
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