Q1 2022 Huntsman Corp Earnings Call
Thank you.
Yeah.
Yes.
Greetings and welcome to the Huntsman Corporation first quarter 2022 earnings call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the call over to Ivan Marcuse, Vice President of Investor Relations. Thank you you may begin.
Thank you Daryl and good morning, everyone and welcome to the Huntsman first quarter 'twenty two earnings call joining us on the call today are Peter Huntsman, Chairman, CEO , and President Sylvester Executive Vice President and CFO . This morning before the market opened we released our earnings for the first quarter 'twenty two via press release and posted to our website Huntsman Dotcom, we also pose.
A set of slides on our website, which we will use on the on the call. This morning, while presenting our results during the call. We may make statements about our projections or expectations for the future. All such statements are forward looking statements 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 <unk>.
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.
Refer to non-GAAP financial measures such as adjusted EBITDA adjusted.
Net income and free cash flow you can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which is posted on our website Huntsman Dot com I'll now turn the call over to Peter Huntsman, Our chairman CEO and President Ivan. Thank you very much good morning, everyone and thank you for joining US, let's turn to slide number five.
Adjusted EBITDA for our polyurethane division in the first quarter was $224 million compared to $207 million of a year ago, and 8% increase revenues grew 30% primarily due to the price increases that we implemented to offset significant inflationary feedstocks and logistics costs.
Yes.
Our volumes improved 4% year on year.
Compared to the first quarter of 2021 volumes growth in the Americas region was 7% followed by Asia, 4% in Europe at 2%, we expect the Americas to remain our strongest region driven by construction related markets as well as overall economic strength.
In Europe , we are closely monitoring the impact of the war in the Ukraine and on the broader economy, while visibility in this regard is difficult to date, we still see stable demand driven by construction and adhesives and coatings markets.
In Asia, specifically, China, we expect to be negatively impacted in the near term from the government mandated lockdowns as a country attempts to control COVID-19 . Despite.
Continued logistics and supply issues are Huntsman building solutions platform recorded first quarter revenues of approximately $160 million nearly 50% above the prior year, primarily due to a strong pricing actions.
Consumer sustainability trends combined with high global energy prices remain clear tailwind for H B S and strategically we will continue to up value, our polymeric MDI into spray foam insulation systems.
Our polyurethane automotive platform continued to be impacted by the global chip shortage and supply chain issues. However for the first time in several quarters, we delivered year over year growth. This growth was due to modestly improving trends favorable year over year comparisons and continued.
Substitution Rev.
Revenues increased 18% with volume increases at 4% year over year.
We will continue to invest in our automotive platform and bring innovative solutions to our customers.
Our third global platform as our elastomers business, which includes both industrial and consumer segments. We continue to implement price increases to offset inflation and overall revenue climbed 28% versus the first quarter of 2021.
The industrial markets remain the strongest sources of value and demand for this business with good growth in the Americas, we've chosen to deselect. Some footwear related revenues in Asia, where we do not believe value is being achieved in a highly inflationary environment.
Our value over volume approach remains core to our strategy for polyurethane and this intent will drive our decisions.
On how and where we invest and also where would choose to supply both geographically and by end market. The new MDI splitter in Geismar, Louisiana, which is one of our strategic investments that will allow further upgrades to our Americas portfolio will be completed in June and will begin to contribute to results.
In the second half of this year.
We disclosed previously once fully up and running we expect this project to add an incremental $45 million of annual EBITDA to the division results by 2024.
As we told you this last year at our Investor Day equity earnings from our Po MTBE joint venture with Sinopec in China declined in the first quarter compared to a year ago due to lower propylene oxide marches.
Joint venture contributed approximately $12 million in equity earnings for the quarter below the $35 million reported a year ago, we still expect equity earnings to be approximately $50 million lower than 2022 versus 2021.
Material inflation remains a challenge, though through our pricing efforts, we were able to offset more than $250 million in direct cost when compared to the first quarter of 2021 about.
About half of this inflation and costs were in Europe , where we implemented surcharges and price increases in order to overcome these headwinds we expect cost to increase in the second quarter over the first quarter, but believe we will be able to offset these costs through our pricing initiatives.
In addition to our focus on upgrading our margins by driving molecules into higher value added margins and products. We are focused on optimizing our cost structure in this position to further improve margins.
We delivered in excess of $40 million from our first phase of cost optimization that synergies in polyurethane and we're in the process of concluding our plans for the next phase will provide details on our second quarter earnings call and expect to deliver a $60 million run rate by the end of 2023 is tough.
At our Investor day.
Looking into the second quarter were watching closely all of the challenges that the global economy is facing such as military conflict Covid Lockdowns in China cost inflation and continued supply chain disruptions.
These challenges while visibility is difficult, particularly in China, and Europe near term trends in the second quarter remained relatively stable with the first quarter. As a result, we expect polyurethane second quarter adjusted EBITDA to be in the range of $210 million to $230 million.
Let's turn to slide number six performance products reported adjusted EBITDA of $146 million for the first quarter with a 57% increase in revenues and adjusted EBITDA margins rising to 30%.
This margin is above our target range of 20% to 25% with both a means and molec delivering strong performance over time, we do expect some moderation in certain amine products in Asia, primarily into the renewable energy wind market.
We are confident that the supply and the demand dynamics and performance products remained favorable in the medium to long term. In addition, with our commercial excellence program and focus on cost controls This division.
<unk> continued to deliver high adjusted EBITDA margins clearly in excess of 20% for the foreseeable future volumes.
Increased 2% compared to the prior year period.
Manned fundamentals in coatings, and adhesives constructions composites fuel additives and other industrial markets are benefiting both our <unk> and <unk> businesses.
We saw profitability improve year on year in all three regions as well as sequentially compared to the fourth quarter.
Throughout all our divisions, we are focused on value over volume and performance products is no different.
This will continue to be the case as we make targeted organic investments, we have absorbed over $80 million and year on year cost increases expanding margins were.
Where possible and have remained extremely disciplined commercially.
We have said before this is now a very different divisions than the one we formally ran before the $2 billion divestment to endo, Rob in early 2020.
Last year, we announced targeted capital investments and polyurethane catalysts and differentiated chemicals, serving the electronic vehicle semiconductor and installation markets.
These projects continue to move forward and will remain on schedule to be completed on time.
We expect all of these projects to contribute to results in 2023 and deliver more than $35 million of EBITDA benefits in 2024.
We've said multiple times, we would be highly interested in doing bolt on acquisitions in performance products, but these opportunities tend to be few and far between as a result in the near term we will stay disciplined and remain focused on organic investments in order to expand this business.
The second quarter for performance products tends to be similar to the first quarter. However, we do expect to see some impact in volumes in China as a result of the Covid lockdowns in that country.
Currently expect performance products. The report a second quarter, adjusted EBITDA of $130 million to $140 million.
Let's turn to slide number seven.
Advanced materials reported adjusted EBITDA of $67 million in the quarter significantly above last year's first quarter and the strongest quarter in the division's history, we achieved 20% adjusted EBITDA margins with an extremely disciplined approach to value over volume and all of this.
<unk> aerospace results remaining well below pre pandemic levels on a per unit variable contribution margin basis advanced materials delivered a 50% improvement compared to the first quarter of last year and crucially, a further 15% improvement since quarter four.
Spiked for the raw material Escalations.
We are deselecting lower margin business, while increasing our exposure to higher value sales where possible.
In addition, the recent acquisition of Gabriel CBD CBC are contributing strongly with a combined annualized run rate of $80 million adjusted EBITDA in quarter, one and above our average adjusted EBITDA margins as we execute on pricing and synergies.
Revenues increased 21% compared to quarter, one of 'twenty, 'twenty, one and 6% versus quarter four.
Prices increased 34% compared to quarter, one 2021, while volumes were down 17% in the quarter versus the prior year and 5% sequentially.
The majority of the reduction in volume was a conscious decision to exit commodity DLR manufacturing in the U S. In line with our stated strategy.
Raw material availability shortages soft demand in Latin America, and implementation of our value over volume strategy somewhat curtailed volumes across our business, particularly in automotive, which declined 15% compared to the prior year.
So.
We're relatively flat versus the fourth quarter, we did see growth in general industrial markets.
Our aerospace business saw a significant uplift over last year's depressed quarter, one and a meaningful sequential increase in profitability Aerospace is currently trending towards an approximately 40% improvement compared to 2021, which would leave us at approximately $30 million of adjust.
That EBITDA short of pre pandemic levels. The fundamentals of this industry remains strong we expect to see continued improvements over the next couple of years, we get back to pre pandemic levels at.
At this time, we still see stable underlying demand for many of our core specialty businesses in the Americas, and Europe and continue to see increase prices to offset inflation we.
We do expect that the COVID-19 related restrictions in China will have a modest impact on advanced material results in the second quarter. We expect adjusted EBITDA for this segment in the second quarter to be in the range of $62 million to $68 million.
Move on to slide number eight our.
Our textile effects Division reported an adjusted EBITDA of $28 million for the first quarter, which was 12% above the comparable prior year period. This coupled with a record 14% margin is the strongest first quarter in the history of this business.
Overall revenues increased with strong pricing discipline and a focus on our specialty and differentiated sector. We continue to deselect lower margin business and total volumes declined 14% in the quarter in part due to disruptions caused by the Covid Lockdown in China.
The first quarter volumes were also impacted by a slowdown in the home textile market as imports into the U S fell year over year lastly volumes were impacted by the recent rise in fiber prices, which caused many of our customers to delay open orders, while they renegotiate contracts are for.
Or where to open order patterns for this segment are extremely strong and well above 2021 level.
Continued portfolio focus and market pricing alignment to high higher raw material costs supported margin expansion during the quarter.
Main optimistic on the underlying fundamentals of this business and are confident our specialty oriented portfolio will continue to remain strong and make up a larger percentage of our overall portfolio as indicated the order book is robust as customers and global brands look for solutions to reduce waste and increased <unk>.
Currency in the supply chain.
But we're watching the lockdown situation in China carefully. We currently expect adjusted EBITDA in the second quarter to be between 29 and $31 million.
I'll now turn it over time to our Chief Financial Officer, Phil Lester.
Thank you Peter turning to slide nine.
Adjusted EBITDA increased $116 million to $2 million to $415 million or 44% improvement compared to the first quarter of 2021.
Sequentially, adjusted EBITDA improved by $66 million or 19%.
We were particularly pleased to see a 170 basis point improvement in adjusted EBITA margins versus the prior year to just over 17%.
We delivered this improvement in adjusted EBITA margins, despite cost of sales increasing at an annualized level of approximately $1 $5 billion since quarter one of last year.
Yes.
Our MDI business alone, we incurred approximately $450 million of annualized year on year energy cost increases primarily in Europe .
All divisions improved adjusted EBITDA without performance products Division driving the largest portion of the increase following a 30% margin quarter.
On the right side of slide nine you can see the output of our value over volume strategy.
With combined volumes relatively flat for the quarter, but with pricing and positive mix, leading to $179 million of profitable improvement.
SG&A and R&D remained under control despite the high inflationary environment with SG&A to sales at 9% in the first quarter.
The negative variance in FX and the other is driven by lower equity earnings from our China propylene oxide joint venture and the strengthening of the U S dollar against the euro by 8% year over year.
Let's turn to slide 10.
As a reminder, we have targeted an incremental $100 million of cost optimization and synergy savings, bringing a total of $240 million run rate.
Savings expected by the end of 2023.
We have delivered approximately half of this run rate at the end of 2021, and we closed this quarter at an annualized rate of approximately $125 million.
We are in the process of concluding our plans for the next phase of savings, which covers polyurethane margin enhancement global business services expansion as well as supply chain optimization.
We expect to announce the details in the coming months and discuss in more depth at our next quarterly earnings call. We remain confident that we will meet or exceed the full run rate level of $240 million of savings by the end of 2023.
Turning to slide 11.
Net cash provided by operating activities was a positive $85 million in the first quarter compared to an outflow in 2021.
Free cash flow was also positive despite over $200 million.
Working capital inflation, as raw materials and energy prices rose significantly in the quarter.
Capital expenditures amounted to $69 million for the quarter and we continue to expect approximately $300 million of spend in 2022, as we complete our geismar MDI splitter investment.
Our operating working capital closed at 16% of sales in quarter, one compared to 18% in the same prior year period in the second quarter, we do expect additional working capital inflation on the back of further selling price and raw material increases.
We remain on track to meet or exceed our 40% free cash flow conversion target in 2022.
As a reminder, this target excludes the funds we will see from Albemarle in the second quarter.
We expect to receive a net amount of $78 million from Albemarle in may bringing the total post tax benefit to huntsman from the legal settlement to $410 million.
Our balance sheet remains strong with total liquidity of $2 3 billion, our net debt leverage of <unk> five times, we received credit rating agency upgrades from S&P to Triple B minus and from Fitch to Triple B during the first quarter, a reflection of our disciplined approach to our balance sheet and.
Capital allocation as well as the strength in our underlying portfolio.
We increased our dividend by <unk> 10, a share or 13% during the first quarter and recorded adjusted earnings per share of $1 19.
Compared to <unk> 65 per share in quarter, one of 2021.
We also repurchased approximately 6 million shares for $210 million at an average purchase price of $37 and 85 during the quarter.
As previously announced our board of directors authorized an increase to our total share repurchase plan to $2 billion.
We had approximately $1 7 billion remaining on the plan on March 31, 2022 and <unk>.
Spec to repurchase a total of approximately $1 billion of shares in 2022.
Based upon our current market capitalization, we expect our total return of capital to shareholders to be approximately 15% in 2022.
Peter back to you. Thank you Phil.
We announced the results of our first quarter, it's worth taking a few minutes to remind our shareholders. What we presented at our Investor day in November of this past year.
At that time, we are what we outlined a projection that we plan to hit a margin of 17% EBITDA margins in 2022.
Our first quarter results hit this objective, we had raw material prices.
Excuse me had raw material price has been equal to the time. When these projections were showing our first quarter EBITDA margins on a lower cost basis would've exceeded 17% in short, we're achieving our plan, while contending with record high raw material prices and volatility so.
As we look into the second quarter, we remain optimistic of hitting our EBITDA range of $380 million to $420 million. We still continue to hold a firm view on pricing and passing raw material increases to our customer base across all of our products.
Remained focused on two principal areas number one we will focus we will continue to focus on value over volume.
By the end of quarter, two we will be operating our MDI splitter at Geismar, Louisiana. This will enable us to take existing commodity grade MDI and upgraded to a higher margin product.
It will also allow us to renegotiate more competitive contracts on our existing commodity MDI sales.
In our performance products, we are on track to complete completing upgrades to produce higher value <unk> and carbonite, allowing us to be the sole north American producer of electrical of ethylene carbonate for EV batteries catalysts and semiconductor chips.
We continue to see a recovery in our aerospace market as well this recovery together with continued synergies and pricing excellence will assure our advanced materials division meets our margin objectives in excess of 20% adjusted EBITDA.
Our second major focus.
As on our cost realignment across all of our divisions and our SG&A, we presented at our Investor day goal of $240 million to date, we've achieved $125 million of value creation. We remain on track both with respect to timing and the $240 million objective.
We share the concerns expressed by just about every company with regards to the threat of energy volatility inflation consumer spending and the uncertainties between Russia and Ukraine for this reason, we will maintain a strong balance sheet, while focusing on greater.
<unk>, then 40% free cash flow.
Execute with even greater determined.
Greater determination our efforts around our cost structure and continued to diversify and up value our customer base, we may or may not be able to anticipate exactly what will impact us in the coming months, but we will remain focused on creating value and delivering results.
With that operator, we'll open the line now for any questions.
Thank you we will now be conducting a question and answer session.
Like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Ask that you please limit yourself to one question one moment, please while we poll for your questions.
Our first question comes from the line of P. J <unk> with Citi. Please proceed with your question.
Yes. Thank you Peter can you talk about the aerospace recovery that you mentioned.
I know you have exposure to more wide body planes.
And as international travel picks up what should be the cadence of recovery is disciplines have brought back into service.
Well.
Jay very good to hear from you and as we as we think about that.
Let me just kind of go back and remind you in our aerospace <unk> Aerospace we were at about a $90 million run rate pre COVID-19 and I would say that we kind of hit on an annualized basis. During the depths of Covid say, a $40 million EBITDA level of dropping about $50 million.
I think it's fair to say that we're probably about halfway through that recovery probably up at this point of about a $60 million run rate up 'twenty from the bottom still 60 to go and that is to get us to where we were pre COVID-19 .
Now we've qualified and are in the process of qualifying for additional applications with some newer models and so forth that are coming on.
But simply put.
Yes.
For the remaining $30 million to get us back to that pre COVID-19 level is going to depend on the orders largely around wide body aircraft as you rightly said.
And thats going to be driven by both demand and.
And fuel efficiency, so one of the areas, where typically in high energy costs, we see improvements in areas like energy conservation spray foam insulation and so forth. We also see a airlines.
That are ordering more fuel efficient aircraft and as you think about more fuel efficient aircrafts you can see the retirement.
Airlines have already done around the 380, Airbus and the 747, Boeing and you'll see those replaced by the $3 50, and the 787 Boeing and Airbus models, and so I think what we're seeing to date is about what we told the market that this would be a two to three year sort of recovery and I think that will probably.
About halfway through that and we'll probably see a more fulsome recovery hopefully back to that level by the end of next year.
Okay.
Thank you. Our next question comes from the line of Alexia <unk> with Keybanc. Please proceed with your question.
Thanks, Good morning, everyone. Peter for performance products EBITDA margins were very strong at over 30%.
As far as I remember you were setting long term goals for this segment at 20% to 25%.
Do you feel more optimistic about these long term targets or is there maybe an element of cyclical upside in the car and margins that may not be sustained into the future.
I will take that.
We are able to execute our pricing excellence and cost structure and so forth I would tend to lean more to the 25 sides into the 'twenty side, but I still feel comfortable in that range now bear in mind that as we see investments coming into this business, where we're going to see the upgrading of our carbonate she upgrading of our amines and the upper.
Grading of our customer base and so forth over the course of the next 12 months to 18 months I think that you're probably going to see a 25% margin, perhaps being more standard.
There is no doubt today the business is benefiting from.
I won't say unusually but it is probably stronger than normal.
Demand in PFS.
Or excuse me <unk> and <unk>.
And as we think about that.
I think theres also some fundamental changes that have taken place in the structure of a number of these industries. The number of competitors Theyre focused broadening applications pricing discipline. All of these things across the board. So I would say from where I sit today that $20 to 25 range.
Number was given I would I would probably have thought that the normalized would be more towards the lower end of that range I, probably would lean more to the higher end of that range over the course of the next year or two I would see that gradually improving as we as we see our products continue to be upgraded.
Thank you. Our next question comes from the line of Mike Sison with Wells Fargo. Please proceed with your question.
Hey, guys nice a nice start to the year.
Peter you are having a really good first half.
400 million plus in EBITDA roughly each quarter.
How should we think about the second half and I know, it's a little bit early to give specific guidance, but.
Can you keep.
That level going or.
What are the puts and takes for us to think about.
And sort of modeling the second half and if any specifics you can give would be great.
Mike I would yes, well. Thank you very much I think that we are.
In the first quarter kind of where we expect it to be.
And.
I would think that the second half has the potential to be just as strong.
Perhaps even better than the first half now I say that with an enormous caveat.
And we've pointed this out a couple of times in the call.
My short term my biggest concern is around overall demand I think that we've done an excellent job in the last couple of quarters being able to push through price increases and just as we said in the first quarter, we pushed through a quarter of a $1 billion of price increases not only achieving that increase but.
Also expanding margins, we saw EBITDA margins on a per pound basis go up across the board again, even after absorbing.
An enormous amount of.
Raw material inflation of around $375 million, the $250 million I'm, sorry that was just in polyurethane until out $375 million was for the entire company.
As I see the biggest headwinds going into the second half and again, given what the actions of <unk>.
Russia and other areas of the economy.
These are all subject to change and about 10 minutes from now but.
My biggest concern is around overall demand.
We may be able to maintain margins, we may be able to push through pricing, we may be able to even expand our margins, but if the overall demand. The overall tonnage that we're able to sell drops.
That would be that would be my biggest concern.
And I think short term.
What we're seeing in China with the Lockdowns, if we continue to see the impact of the Lockdowns as of today that we're saying that that will have.
And impact on our business of upwards.
Around $20 million a month again.
Believes that when.
When China Reopens and when these lockdowns are lifted I think that we earn that back I think that youre going to see margins and pricing.
And demand will boomerang back very quickly.
But how long this lasts and if it has the potential to spread to other regions in other metropolitan areas.
Thats yet to be seen but that that would be my biggest near term.
Near term impact on the business to be kind of what's happening in China longer term in the second half would be overall demand and a slowdown in demand what impact.
There might be with higher interest rates and mortgages and so forth, but fundamentally when I look at margins when I look at new applications and I look at upgrading customers when I look at cost efficiencies and so forth.
I remain quite optimistic for the second half of the year.
Thank you. Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
Thank you Peter just on MDI manufacturing in Europe can you talk to the competitive competitiveness of that right now by the industry.
And do you think your advantage at all having a plant in the Netherlands as opposed to capacity in Germany.
Yeah.
Yes, David very good very good to hear from you.
Yes, I think that we are I think that the Netherlands.
We have a.
Excellent.
Arrangement, where we are getting a portion of our electricity and power at that site from wind and contracts that we have in this area again I don't want to portray that we're somehow impervious to natural gas supply and pricing and so forth, but I like our position there we are in a chemical cluster.
That is quite independent and quite stand alone and to date, we haven't.
I just don't.
See a threat.
As of what we have seen thus far we've heard and read about some of the actions that might be taken if there is a but.
Natural gas curtailment going into Germany, and the impact that might have on some of the.
The larger sites, along the Rhine River and so forth.
But again that may that may impact us, but it would it would impact us on quite a bit.
Two or three levels removed.
And.
I like our position.
Our.
The demand in the customer base that we see we're in the process right now of looking at our entire European footprint.
And that European footprint, when we look at the European market for US. It includes the Middle East. It includes Africa that includes India, and we frankly, we need to look at that entire region, we need to continuously calibrate where we're going to get them the best value for.
The tonnage that we have available.
Again, I know I sound like a broken record in saying this but we're not out trying to move.
New tonnage we're out trying to move improved margins improved tonnage improved customer applications and.
That means that we're going to continuously look at.
Our customer profile and the regions, where we do business I mentioned on.
In my prepared comments that that we've pulled out of some of our footwear applications.
Under our our TPU business.
And southeast Asia again, a few years ago. This is a very strategic and of our business, but if we're not going to be able to get pricing and we're not going to be able to pass through raw material prices, we're not going to be able to increase.
Our margins and so forth and.
And get the very best value for that tonnage will move the tons somewhere else and we'll continuously look at where we can grow stronger relations and stronger applications.
Thank you. Our next question comes from the line of Kevin Mccarthy with vertical Research partners. Please proceed with your question.
Yes, good morning, Peter It seems that demand is quite strong across many of your major product lines. So.
In that context, do you foresee the need to debottleneck or otherwise add capacity moving forward.
And related to that how do you think the capital budget of 300 million this year might trend as your splitter project rolls off.
I'll, let I'll ask Phil to comment on on the capital projects and projections they are in.
But I would just note that I would hope that we are continuously looking at internal projects, where we can get an extra 123% of excess.
New capacity efficiencies that that.
Proverbial learning curve inefficiencies that we have in any manufacturing process.
But aside from some relatively select applications, we're expanding in some of our amines area.
Where we are going to be adding the capacity to produce more catalyst and so forth most of our capital right now.
I would say, 75%, 80% of our capital that's been spent in the last year and will be spent over the course of the next six to 18 months is going to be spent on upgrading our capacity taking our carbonate.
Today, and moving them into Evs, taking our means and moving them into ultra pure applications and do.
In the semiconductor chips and so we're taking our commodity MDI in North America, and moving it out of some of those more traditional commoditized applications and moving more into automotive and moving it into further downstream applications and.
Again that focus on value and I think that as we look at it.
The overall multiple of our company and we look at the value that the market puts on our EBITDA and the cash is generated.
We need to have higher margins, we need to have.
Later reliability and greater consistency of those earnings.
And we've set that out now for the last two years or so and we intend.
To do just that and a lot of those investments that we started a couple years back such as the MDI splitter in Geismar, Louisiana are coming to fruition.
We'll be seeing the full impact of those and I would just remind you and many of those decisions as well as we as we move from one market, we upgrade going into another market. We see really dual benefits here, we see the benefit of tonnage that moves into a new higher value added market and we also see that as we.
We exit other markets.
Perhaps some of those customers.
Valuing its a little bit more than we had thought they had in the past, it's an opportunity for us to renegotiate contracts and look where we can we can recover a higher margin because that tonnage.
Is either going to have to have a higher margin or will we will simply upgraded and moved to greener pastures. If you will so.
I think theres a dual benefit that comes as we talked about the benefits of project Patriot, we've been saying that its a $45 million benefit that $45 million really comes about through the upgrade on the backend moving into <unk>.
Moving into differentiated markets. It does not account for the benefit that we've already seen.
And a lot of our markets are being able to.
To negotiate better pull through contracts and longer term.
<unk> and so forth.
Phil do you want to comment on the working capital, Yes, Hi, Kevin. So we spent $342 million last year on Capex will be down this year approximately $300 million. That's a good number to model on outlets about 3% to 4% of our.
Overall sales and we said we'd be very disciplined.
<unk>, approximately 60% of that capital to growth capital.
Projects, which we've talked about are incredibly important those amount to about $150 million of spend over the 22 and 'twenty three time period, and there's a number of targeted investments that we can continue to make in order to grow the business effectively but argues for modeling purposes, approximately $300 million, Colorado going out.
Thank you. Our next question comes from the line of Andrew <unk> with Morgan Stanley . Please proceed with your question.
Hi, Thanks for taking my question.
I was hoping you could give us a little bit more color on the performance products segment, maybe parse that out a little bit more.
You talked about the PR, maybe perhaps benefiting from some demand.
But if you look at volumes they haven't been anything.
Crazy sorry, it seems like as you talked about maybe it's more value over volume that's part of it but maybe if you could just parse out what are some of the maybe quantify and then what are some of the other buckets that are helping and maybe driving some of the strength and within that as we think about the malaise process I believe that's kind of an energy producing processing generally some steam and power.
That you can benefit from could you quantify that as well if that's part of the benefit as well.
Yes.
Hey, Joe This is Greg.
Question I think when we think about the steam to the benefit off of that I wouldn't think that that's material to the business. It certainly helps us when we're in an environment of higher energy prices, because we are able to get a credit something akin to natural gas prices and so I'm wondering are high priced natural gas environment as we presently are particularly in Europe .
We will see benefit from that but I wouldn't say that that's a material benefit to the business as we think about those downstream applications. This is a business that is largely looked at moving molecules in the past when we were using our amines business among other things to move the ethylene oxide propylene oxide move some of that.
Major raw materials that we were producing within the company.
Now that we're kind of unhedged from that if you will.
It's really looking at value looking at fuel additives, how do we make gasolines cleaner, how do you make them more environmentally efficient we're looking at the purity of our amines products and continuously upgrade that is to think of the solvents that are used in the semiconductor and the chip manufacturing the cleaner the chips are.
When youre getting down to parts per billion on cleanliness, and so forth the more efficiency that you're going to get from the chips and the greater throughput youll be able to get on a per chip basis electronic vehicles and the application going into the electronic vehicles is something that continues to be a real focus of an area of growth for us.
Like I said by this next year will be the only north American producer of high purity carbonates, which is your raw material that goes into the electric lights that connects year analyzing cathodes charged within a battery.
As you look at some of the.
The broader applications that we see.
The amines sector, as well going into replacing traditional solvents, replacing applications youre carrying agents going into the wind industry in China, particularly continues to be a very strong demand for the business and I think that as you look at the <unk>.
These greener trends.
That will continue.
Youre going to continue to see.
Uh huh.
Strong demand and that wind in that power area. Another area that we're seeing strong demand in the amine Jerry is the use of a catalyst.
Other large customers that we are seeing growing very well.
Have high expectations going into the future.
It's going to be around the polyurethane catalyst in the spray foam business we supply.
Some of the catalysts that are going into the spray foam industry into the Huntsman building solutions segments come from the Huntsman performance products section and those are all transferred to the market price because we are able to buy those some of those same products from another competitor. So we know what that market is and we think thats going to be.
Very strong.
And growing market for the business as a matter of fact, that's why we have.
Part, while we have some of the investment that's going on in Hungary will.
We will be to supply some of the international applications and even some of the domestic applications, we have in that polyurethane.
Catalysts business, so I can go on but.
We've put some of your slate, but it continues to be a very wide and diversified end use application for us.
But we're going to just keep relentlessly pushing as far as how do we make a better product more pure product and how do we make a product that's more valuable to the company.
Thank you. Our next question comes from the line of Frank Mitsch Fermium Research. Please proceed with your question.
Yes, good morning, and certainly would never doze off Peter.
I understand that.
You guys may have been pretty busy during the first quarter, but the strategic review of the textile effects business was supposed to begin in earnest early in the first quarter. So I was just wondering where that stands and if you have any updated thoughts on that.
Frankly, I would never expect you to dose off not necessarily the morning, Tom after six PMI might expect after that might be accompanied with some libation and so forth anyways.
Yes, as we think about that.
<unk>.
Process right now I think it's look we're.
And then kind of that phase, where you can acknowledge that you are moving forward I don't think that we want to get into too.
Any more detail that would get us in trouble or perhaps raise or lower expectations on one side or the other.
Fair to say that we have multiple interested parties and we're moving along at a pace.
But we sat and we outlined to the market a few months ago and we remain on that track right now I don't see that having.
Don any slower or.
It's proceeding about exactly.
We had expected it to.
Okay.
Thank you. Our next question comes from the line of Matthew <unk> with Bank of America. Please proceed with your question.
Yes. Thanks can you talk a little bit about the revenue deselection in advanced materials, and how you were able to grow earnings in a backdrop, where volumes were down 17% year over year.
Well, it's by focusing on that value over volume and where we have products, where we don't add.
Significant margin.
Products that are in the basic liquid resins.
We're basically taking someone else's epichlorohydrin or someone else's chlorine of raw materials, and we're merely blending products together and not adding a great deal of chemistry or knowhow.
Customer intimacy our service to that.
It's just frankly, not an end of the business that we choose to be in so I would I would remind some people that are trying to model. The advanced materials business. We've said this in the past that when you focus on the core of the business.
And as you focus on the growth end of the business. This business you'd see one of the business.
<unk> literally shrinking the business and exiting the business.
And we have another end of the business that is growing much better then.
Then what we're seeing right now on a GDP basis, so within advanced materials, you're going to see better than GDP growth in the core end of the business and in the other end of the business.
Where do you see.
Some of the lower margin coatings, and some of the lower margin applications, where we're kind of been there slugging it out with a dozen other companies same products and applications and so forth.
We will continue to deselect from those and where we have opportunities to move those molecules somewhere else. We will if we cant move the molecule somewhere else then.
We'll exit them.
Thank you. Our next question comes from the line of Josh Spector with UBS. Please proceed with your question.
Yeah, Hi, Thanks for taking my question I think Peter if I heard you right you talked about in polyurethane auto as market demand was up maybe a low to mid single digit percent year over year that seems to outperform unit sales of unit production and auto is pretty nicely. Just wondering if you could differentiate between how much of that is linked with unit demand.
Maybe if there's some inventory effect, which helped the quarter or really how much of that is the substitution effect that you referred to.
I think a lot of that really has to do with with substitution of other products.
<unk>.
I think that as we also see.
A lot of the growth in your higher end applications such as.
Your Tesla applications as we've said in the past we've won the saving contest.
Seating applications I should say for Tesla in China, we're in the process right now.
Working for applications working for qualifications and applications for other vehicles as well, but we throw evs around quite a bit in these calls but this is this is something I think that when we focus on the battery we focus on the installation the sound of the car we focus on the <unk>.
Adding in the light weighting of the vehicle I think that we're uniquely positioned in all of these areas.
<unk> be able to really add value and we're going to continue to do that so the higher end automobile segment continues to do quite well for us and.
I hope that I hope that we're able to do better than than what you would see if the overall.
If the overall car industry is seeing zero growth I hope that we're seeing something slightly better than that.
Yeah.
Thank you. Our next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.
Hi, guys, it's Dan Rizzo on for Laurence. Thank you for taking my question.
Given how tight the market is would you can co invest in a greenfield.
Plant.
<unk> market share in downstream Chemistries will return.
Yes.
Look I would never say never.
Have to be it has to be a really compelling.
Case to go to a greenfield.
I look at potentially.
Potentially expanding to add a line or.
Increase in existing capacity with a customer or partner or something like that.
Perhaps but I think right now to take.
1 billion and a half $2 billion for a greenfield when I talk about our greenfield.
<unk> two.
<unk>.
Yes.
A brand new facility scrape year, if you're building a brand new site youre, starting with nitrobenzene going to annually going to MDI going to variance in splitting and so forth.
Youre looking at a world scale basis of 400, plus thousand ton facility Youre looking at a 1 billion and a half to $2 billion and Youre looking at seven to eight years to build that.
If I were to take $2 billion in just buying shares at our market cap today.
Kind of looking at a 25% improvement in our stock price, if nothing happens on multiples or anything else that.
Over the course of the next year or two versus over the course of the next eight years investing in a facility that when it comes on stream.
Who knows where the markets are going to be in.
I just kind of look at that.
From my conversations with shareholders and.
Just kind of looking at the numbers.
It'd be very hard pressed to see.
To see us actively pursue aggressively pursue a greenfield investment and an MDI plant again, please don't interpret that theyre not dedicated to the business.
We're not looking to invest in opportunities in MDI I, just think I'd, rather see us put a.
100 $200 million over the next couple of years into downstream spray foam and upgrading our MDI in looking at those downstream applications and moving into those applications than producing more MDI.
Thank you. Our next question comes from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question.
Hi, good morning.
Wanted to ask a little bit more color on the Geismar splitter.
Really what does that start up process look like between now and June and can you walk us through the P&L impact on your EBITDA. This year should we think that there are maybe some costs coming in on the front end and then we ramp gradually toward debt.
$45 million annual EBITDA contribution.
And if you could maybe also comment our customers already in place for the upgraded.
But coming out of the splitter or is it going to take some time to sell this new material through.
Oh I think good when you look at it youll be seeing.
We operate one of the same sort of facilities in China and also in Europe . So this isn't going to be something that takes us six months to start up and were going to trying to learn.
How to operate this I would hope that we'd have a very quick start up.
What will take time here is actually qualifying new product from our new facility.
Going into <unk>.
To our customers now again, we've been feeding some of the market and ceding some of the market with products coming out of Asia, and Europe and so.
So as we think of the second half of this year I would think that it should be around $10 million to $15 million benefit as we think of next year, you're probably looking at 35 $40 million ish and then by 2024 Youre running at a full on run rate.
So.
It will be gradual just from the qualifying and from the supply.
Sort of a period, but we're not going out and just starting to hit the market on a sales once we start up with this process.
We've identified the customers and market segments, we've been bringing product over from.
From Europe and from from China, and we're going to we're going to hit the ground running I would be a little disappointed if we didn't beat the timing that I just gave you, but I'm also trying to be realistic.
The qualifying time that customers and so forth.
Yes.
Thank you. Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.
Hey, Good morning, Peter I was hoping you could talk about this rising mortgage rate environment in the U S.
How it might impact housing and then specifically.
Do you think there'd be like a one for one ship.
As housing slowed down to your polyurethane segment or are there ways that you had.
The insulated from.
Community sort of housing downturn.
Yes, so when you think about North American.
Didn't you all think about 10%.
Of our polyurethane.
Of our overall business that we have about 10% of our U S.
Overall business is U S residential and think about.
Two thirds, that's going to be new build and one third of that is going to be retrofit as you see residential slow on new builds you're going to see retrofit expand as people decide not to move into a new home not to buy a new home not to invest in a new home. It typically will expand and retrofit their existing health I want to be absolutely clear.
Not going to be on a one for one basis I'd much rather see a new homes built.
For the sake of our of our business our products than to see a retrofit.
Don.
At the same time, if you're going to see a newbuild dropped by hypothetically, 10% youre not going to see attempts and drop in our business. It ought to be mitigated by the improvement that you'll see in the retrofit side and other areas that I would say that impacts the north American residential business for us. It's obviously, a very large segment of that is this.
Spray foam business and with higher energy prices and so forth that continues to do very well for us.
Sure.
Okay.
I'd say, we're sold out in that business from the sense that we're producing as much as we can still being limited by the availability of some of the blowing agents in catalysts and so forth.
That we need for that business, we have a backlog in that business of about five weeks.
Meaning that if we don't get another order come in and we're still going to be running that business for.
The next month, plus just trying to.
Phil.
The orders that we presently have on an on book so.
As I look at that residential we continue to see.
Strong demand in our.
In our building applications and building materials and so forth again, we have not seen that slowdown but.
I can't sit here at the same time and say.
Yes, we don't have a cautious eye in that that area.
When you look at the number of new home sales when you look at the number of mortgage applications and building permits and so forth.
It does look like there's going to be some volatility in that area, but at the same time, there's also going to be environmental retrofits upgrades and we will continue to take.
Market from other products and competing applications. So.
That's a very important segment for us and we're going to continue to invest in it.
And operator, I think we've got time, we like to enter the top yeah, let's take one more question and then I think we need to wrap up here.
Thank you. Our next question comes from the line of Hassan Ahmed with Alembic Global. Please proceed with your question.
Good morning.
Just.
Just wanted to revisit the European MDI side of things, obviously, Europe is a pretty large part of the.
MDI industry.
I mean have you guys seen.
Some reductions in operating rates already over there and it's not.
If sort of the current geopolitical situation continues.
Expect to see second curtailments operating rate reductions and the like and again only reason I ask this is in light of some of the commentary coming out of BSF a couple of weeks ago.
Yes.
I have not read or heard what psf had to say.
Our business right now in Europe , It's obviously not the same size as BSF, but as we look throughout Europe . We continued to be sold out right now we continue to see strong demand and again.
I don't want to sit here.
Very my head in the sand and say that I don't have concerns around.
Raw material and around the possible consumer confidence.
Confidence or lack thereof, and inflationary pressures and so forth but.
I thought I'd never hear myself say that but.
At $30 gas, which is in.
As an exorbitant high price.
It's substantially lower from where it was.
A month ago, where it was more than double that price and.
I think that our Rotterdam.
Cost basis.
We're working very hard to make sure that we can put through prices. We can keep demand we can focus on new applications and.
I think that where we are.
We continue to do well in Europe again, it's the lowest margin and of our MDI business, just because of that area of raw material costs.
And.
That wasn't the case, but I think it's probably going to be the case for at least for the near future here.
Thank you that is all the time, we have for questions. Today. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.