Q2 2022 Venator Materials PLC Earnings Call
Good morning.
Welcome to the Ventura second quarter 2022 earnings conference call.
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I would now like to turn the conference over to Kate Robertson, Venice, Florida Investor Relations. Please go ahead.
Thanks, Joe and good morning, everyone I'm, Kate Robertson Investor relationship Anatomically area welcome to Venezuela second quarter 2022 earnings call joining us on the call today are Simon Turner, President and CEO, and Scott <unk> Executive Vice President and CFO.
This morning, we released our earnings for the second quarter 2022 via press release and posted the release and accompanying slides to our website at <unk> dot.
Com.
During this call we may make statements about our projections or expectations for the future. All such statements are forward looking and while they reflect our current expectation they involve risks and uncertainties and are not guarantees of future performance.
Performance additives comparisons we make on this call exclude the water treatment business, which was sold in May 2021.
You should review our annual report on form 20-F for the year ended December 31st 2021.
6K for the quarters ended March 31st 2022, and June 30 of 2022 and now it was a filings with the SEC 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 in the quarter.
We will also refer to non-GAAP financial measures such as EBITDA adjusted EBITDA adjusted net income free cash flow and net debt you can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted by website at Www Dot Venezuela.
<unk> Dot com I would now like to turn the call over to Simon.
Thank you Kay and welcome everyone to our second quarter 2022 earnings call.
Beginning on slide three we've.
We've made significant progress strengthening our underlying business through delivery of our business improvement programs and a shift to customer tailored monthly pricing reviews.
Total company adjusted EBITDA in the second quarter increased to 61 million from $57 million in the first quarter and $43 million in the prior year period.
Team of dedicated associates continue to manage the significant external supply chain center challenges and delivered strong results.
Turning to slide four and up to attaining dioxide segment.
Second quarter 2022 tier two segment adjusted EBITDA was $49 million compared to 49 million in the first quarter of 2022, and 36 million in the prior year quarter.
Strong demand for old Crs two sectors continued throughout the second quarter in North America.
We saw normalized demand in Europe into plastics, and inks and market.
Demand for products into coatings end market application was softer in Europe and Asia.
As we discussed in our last earnings call during the second quarter, we partially suspended production about scardino, Italy facility by one third as.
As a result of the above factors sales volumes decreased 9% sequentially and 7% compared to the prior year period.
We continue to see cost inflation in the second quarter, primarily from feedstocks energy and other raw materials and our monthly customer tailored price reviews.
Turning to bring flexibility to manage our margins in this volatile cost environment.
Our average selling prices increased 7% sequentially and 31% compared to the prior year period in local currency.
In the near term, we expect demand to remain strong in North America remain intact in Europe and soft in Asia.
We plan to continue with our monthly customer tailored pricing reviews for all our customers.
We see market rates for energy, primarily in Europe remaining elevated and volatile. We also see further pressure from feedstock and other raw materials.
Underlying.
Fundamentals remain broadly positive and we expect this favorable dynamic to continue.
I would like to provide a further update on our <unk> facility in Italy.
I'll scardino facility generates gypsum as a byproduct of the manufacturing process, which has been landfilled onsite and also transported to use in the reclamation of the nearby for Macquarie owned and operated by third parties.
We continue to work with Italian governmental authorities for the authorization of continued gypsum disposal.
While we continue these efforts we have now suspended two thirds of the production from this site to preserve our remaining available landfill capacity.
We have a pathway and are hopeful that authorizations will be granted otherwise we may be compelled to close the site entirely.
We continue to explore all options to avoid the outcome.
And we will continue to optimize production to ensure we create the most value out of our network.
Turning to slide five in our performance additives segment.
Our performance additives segment delivered $19 million of adjusted EBITDA in the second quarter of 2022, compared with $20 million in the prior quarter and $18 million in the prior year period.
This segment continues to perform well, which has been achieved through organic growth improved product mix of sales successful delivery of our business improvement programs and focus on our customer tailored approach to mitigate cost pressures.
Segment sales volumes decreased 3% sequentially and 16% compared to the prior year period volumes were impacted by productivity, all ability and softer demand for products into construction.
Globally demand remains strong for our ultramarine blue products, which go primarily into plastics end use applications.
During the second quarter cost inflation persisted, particularly on raw materials energy shipping and logistics, which was offset by a monthly pricing actions to reduce the impact to our margins.
Average selling prices increased 10% sequentially and 26% compared to the prior year quarter and local currency.
As I mentioned earlier, we expect demand for ultramarine Blue products remained strong globally and third quarter demand in other end markets to be similar to the second quarter.
We continue to see cost deflation, which we expect to recover through our customer tailored monthly pricing initiatives.
I will now pass the call over to Kurt.
Thanks, Simon, let's turn to slide six and our adjusted EBITDA bridges.
Total adjusted EBITDA increased by $4 million compared to the prior quarter. The increase was primarily due to an increase in average selling price, partially offset by higher cost inflation and lower sales volumes as.
As Simon mentioned, we saw further cost inflation, primarily on feedstocks energy and other commodity raw materials.
The EBITDA impact from lower sales volumes was primarily attributable to the partial production suspension at our scardino Tio two facility and softer demand in Europe and Asia into coatings applications.
Our SG&A slash other costs are favorable primarily due to foreign exchange gains in the second quarter of 2022, and lower SG&A costs compared to the first quarter.
Total adjusted EBITDA increased $18 million compared to the prior year period, primarily due to increased selling prices, partially offset by cost inflation and lower sales volumes during.
During the second quarter, we did not see the more normal seasonal uplift in demand for our performance additives products that go into construction.
And certain product availability, we also saw softer demand entity to coatings and partial production suspension at our <unk> facility.
Our SG&A and other costs were favorable favorable primarily due to foreign exchange gains in the second quarter of 2022.
Turning to slide seven and our cash flow considerations free cash flow in the second quarter was positive $58 million, including the $85 million received in cash settlement with Tronox.
Capital was a cash use of $54 million, primarily due to timing of feedstock shipments modest replenishment of finished goods inventory and higher valuations.
Liquidity at the end of the second quarter totaled $341 million, consisting of $109 million of cash plus $232 million.
Availability under our ABL facility.
We have taken advantage of the strong U S dollar and through multiple transactions, we monetize and re entered into new cross currency swaps. This resulted in $8 million of cash benefit in the second quarter and another $8 million in the third quarter for a total benefit of $16 million in cash.
During 2022, we expect the following cash uses capital expenditures of approximately $90 million, which includes modest investment to support future growth working capital to be a cash use of more than $30 million due to higher selling prices and cost inflation.
Restructuring to be a cash use of approximately $25 million as we pay for our successfully completed business improvement program and other cash uses including pension are expected to be approximately 25% to $35 million, which is approximately $10 million lower than 2021, as a result of lower pension contributions.
By the end of 2024, we expect to see a substantial reduction in our annual cash uses of approximately $70 million compared to 2022.
The reduction will come from lower restructuring costs of around $25 million completion of the pori site closure and corresponding reduction of approximately $25 million cash used and finally, a reduction in our pension and other cash uses of around $20 million. As a reminder, we expect most of this reduction to take place in the <unk>.
Next one and a half year.
Putting these legacy cash uses behind US is an important milestone as we strengthened <unk> I will now turn the call back to Simon.
Thanks, Curt turning to slide eight.
The <unk> team delivered strong second quarter results and I continue to be proud of the teamwork and innovation to navigate the challenges presented to us cost inflation pressure is expected to continue in the second half of 2022 on most feedstocks and we continue to manage our requirements by working closely with our supply base.
European energy costs remain volatile with the ongoing conflict between Russia, and the Ukraine, we continue to mitigate these pressures through procurement and hedging strategies.
Our monthly pricing review strategy has been instrumental in enabling them to mitigate cost inflation pressures and manage margins. We intend to continue to review prices with our customers on a monthly basis, which is fully supportive of our customer tailored approach.
Underlying fundamentals remain broadly positive there is no meaningful recent or new capacity on the horizon and an industry, which requires approximately 200 kilotons for new supply here.
The situation is scardina remains uncertain, while we continue to work with Italian government authorities, we have suspended two thirds of our tier two production from the site to preserve our remaining available landfill capacity.
We have a pathway and are hopeful that authorizations will be granted.
While we may be compelled to close the site entirely we continue to explore all options to avoid that outcome.
Earnings from our collection of performance additive businesses continued to improve as a result of successful business improvement programs product portfolio optimization and pricing strategy.
We see additional opportunities for long term EBITDAR improvement within this highly cash generating segment.
<unk> has a world class product portfolio, which we deliver to our customers through our bespoke customer tailored approach. We are focused on growth of differentiated and specialty product sales and continued to optimize production from our network to deliver value enhancing earnings. In addition, we are making good progress to reduce our cash uses by approximately $70 million by two.
1025, this will reposition our business for ongoing success and the enhancement of shareholder value.
And with that I would now like to open the call for questions.
Yes.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
Okay.
The first question will come from Josh Spector with UBS. Please go ahead.
Yeah, Hey, good morning, So just two questions on <unk> I was wondering if you could differentiate on the sequential volume move between what the impact was from your ability to produce so what's going on in Italy in other regions I guess.
Versus what was actually weaker demand.
And then second just curious if you could comment on where customer inventories are within Europe , and Asia, where youre seeing some software to a weakness on the demand side. Thanks.
Sure Josh I'll pick up on this is that still your first question about the second quarter sort of trying to get a handle on parsing out the delta that so if we think about it on a sequential basis and what I would say to you is that.
Less than half of the impact.
Occurred because of the moderation of scaling.
The majority is still came in <unk> from the softer demand in Europe and Asia specifically.
Typically in coatings.
And to be clear there was a small part of the shortfall in the second quarter volumetric lead because of product availability of one of our Odyssey products out of Germany, but that was the minority so I think that deals with the question about the.
The impact.
And.
If you could just remind me of the second part of your question I would appreciate that.
That's correct.
Sure. It was just our inventories what are your customer inventory levels in Europe , and Asia apologies for that so from an inventory standpoint, I mean, we have come through this period, whether it be very little inventory in the chain. There is no doubt that we have seen some softening in Asia and in Europe . We don't we don't see we see some customers.
The coatings area.
Noxso Destocking a little bit there. We think this is a bit of a pause we know that customers are painted a picture. Several large customers are things that a picture in the second half where they can see some rebound wholesome improvement, particularly in Asia and some have made that comment in Europe too. So we still see.
You have inventories.
Being low and of course.
Customers are concerned about ongoing concerns about product availability, which is further keeping a lid on what I would call heavy restocking, we haven't seen that at this time.
Okay. Thank you.
Thanks sure.
Our next question will come from Hassan Ahmed with Alembic Global. Please go ahead.
Good morning, Simon and Kurt.
This morning, you guys, obviously touched on.
Oil price inflation, obviously other raw materials as well can you talk a bit about what you guys are seeing in terms of ore availability.
And also part and parcel with that obviously, you know as Youre seeing oil price inflation you guys are obviously doing your monthly pricing reviews as well. So also if you could touch a bit on if at all you are seeing any signs of demand destruction on the back of.
While significantly higher tio to pricing.
Yes, I mean that second point Hassan I mean, the answer is very straightforward no. We don't see that at this time.
<unk> prices, while higher than recent years, there's not sort of record highs if you like.
And Theres a good appreciation from the customers also about the direct cross run ups that have occurred over these past four or five years or.
So the driven this situation and of course, they've been costing.
Price through to their own customers pretty successfully from from what we can see in terms of your question about raw materials as it relates to ores ores has typically been our biggest spend item within that within the business on a variable cost.
We are we have seen an improvement in the securing and supply chain dimensions around feedstocks. We believe that we've done a good job navigating through a sort of tighter period. These past six to nine months and we believe that that situation will sort of loosen a little bit in the second half.
We currently foresee.
No problems getting our allocation requirements met in the second half across the range of the feedstocks.
The feedstocks contracts have now been settled.
Typically these contracts.
Go around six month periods, not always but typically.
I would characterize two or second half headwind on feedstock as being in line with our forecast and across the different families of products not dissimilar from each other.
I would make that comment.
But of course, as you're well aware of late of course energy has become sort of.
A more volatile and more elevated situation for all our product costing and the like but from a feedstock standpoint is more stable, we know where we're going we think we're getting our product to ship.
That makes sense very helpful and as a follow up on the free cash flow generation side effects.
Obviously scraping away.
The settlement amount that you guys received I mean, it was a <unk>.
Negative sort of free cash flow in the quarter.
But obviously you guys highlighted the $17 million reduction in.
Annual cash usage by end of 2024, so I'm just trying to get a better sense of when you feel.
You as a company was doing in free cash flow positive with all these different moving parts.
Yes, Sean it's a good question that continues to be our.
Highest priority from a financial standpoint is becoming free cash positive.
And look I am not sure absent.
The legal settlement benefits that we've had here this year, if you pull those out.
And we look at when we will be operationally free cash flow positive.
It's probably not in 2022.
But we felt like we got a shot here in 2023, and then of course as we move into 2020 for the bar lowers.
Our ability to be free cash flow positive.
Becomes more probable as we shed the legacy cash uses so the further we go forward in time, the easier that hurdle will be.
But we continue to be hyper focused on it in the meantime, and doing everything we can in order to achieve that goal.
Very helpful. Thank you so much.
Thanks.
Our next question will come from Jeff Zekauskas with J P. Morgan. Please go ahead.
Thanks very much.
What's the normal utilization rate of the <unk> facility.
So typically we would be expected to run that at a set of laws.
<unk>, 85% to 92% of.
Its nameplate capacity of 80 Kilotons Jim.
If you have to close it down.
What would the cost of that base.
The accumulated costs.
Putting the facility to arrest.
Yes, I mean look let's be clear we are hopeful that we're going to get the necessary approvals from the authorities to continue operating this facility we have.
I'm just wondering what the cost would be to close the deal.
Yes look we haven't got to the point, where we're prepared to sort of put numbers out there on the cost, but I have to say that.
We have experience of plant.
Closures and the different components, Pos which are pretty typical severance any contract penalties or remediation and the like and I would.
I would think about scardino at the lower end of the range of what historical closure cost to be spread over multiple years, but it's too early to be getting to that point, we've got to work through to get more specific numbers.
And.
In terms of the legal gain.
What was the cash flow impact of the legal gain in the quarter and are there any taxes that need to be paid in the future and if there are how much.
Yes, Jeff.
If you are referring to the pori related legal style, sorry, the wearable settlement problem.
From Tronox, yes, sorry about that yes.
Yes, no that's fine.
So we collected $85 million of cash.
In the second quarter.
And the tax rate associated with that will be roughly 10%.
We did pay a couple million dollars.
Of tax associated with that 85 collection in the second quarter and the remaining amount will be spread out here through the balance of 2022.
Okay great.
So you talked about fundamentals.
Pretty good but isn't European coatings demand dropping.
10% to 15% year over year.
And.
Happened to Chinese shipped.
100000 tons more than they did in the first six months of last year.
I would think that those would make operating fundamentals more difficult do you expect to grow volumes sequentially in the third quarter in Seattle.
So let me pick up Jesse I mean, the second part of your question no. We would expect to hold onto the soda volumetric levels in the third quarter that we sold in the second quarter in Tok.
Think about <unk>.
Similar level coming back to the fundamentals.
If we talk if we look at China if.
If you look at what's being shipped into Europe . This year.
We've seen progressive decrease we've seen a third months of decreases and those outpace any sort of.
Reduction in coatings demand, we see in Europe . So we continue to see in Europe .
A significant amount come into Europe , but it's.
Actually at the moment lower than into the Chinese shipments of the all of the Americas. So.
Of course, Youll figures on a year on year basis overall exports are up by about 15% that's true, but significant portion of that has gone into Russia largely to sort of replace western companies that have pulled out. So I think from a from a demand point of view, yes, it's true.
We are seeing some softness in coatings in the second quarter.
But we do see that we don't see that as an onward and deteriorating situation as I've explained and we continue to believe that we can manage that level of.
Chinese exports. So it really comes back to our point about supply supply is not getting built in underlying this market is growing and we do expect it to be growing by hundreds of killer tons on average per year over time.
Supply not being built so that's what we refer to them I guess, maybe last question. So what's the price trajectory look like as best as you can tell for the remainder of the year.
We come to an end or are we still rising.
So we certainly don't think we've come to an end I mean, we've already said that we expect to see feed.
Feedstock cost increases in other raw materials in the second half and I think everyone is.
Seeing ongoing to see those.
We of course have a big a European footprint and exposure to energy that and.
You can see in our second quarter numbers that year on year local currency pricing is up by 31%. So there is a strong determination through I'll tell you that approach and monthly approach to continue that in the second half.
Yet clear, where the best softening of demand of course, whether the trajectory will remain the same but we certainly will be and it's our intention to push for further price increases.
I'm, sorry, just one more so.
European gas is now $50 at MPT you plus.
Does that if it remains there through the course of the third quarter.
That put a strain on you relative to the second quarter in terms of your cost structure and if it does how much.
Well it certainly puts a strain and the question is how much of it we can we can manage through our margin and price management.
And we're not prepared to break out the number but you can imagine that this is while we've got significant hedging programs. This type of elevated level.
<unk>.
Cause us some pain so.
It does it does bring some pressure.
Deny that.
That's why we'll be <unk>.
<unk> on our price increases.
Okay, great. Thank you so much.
Thanks, Jeff.
Our next question comes from David Begleiter with Deutsche Bank. Please go ahead.
Thank you Simon and Kurt do you think in T. O. Two do you think you can grow EBITDA sequentially in Q3.
Well I think it's going to be pretty tough, we're not going to get volumetric uplift there.
<unk>.
Conditions are a little bit softer.
In the third quarter I think we've highlighted in Europe and Asia.
Even as that gets better we don't expect that to them very extremely quickly. So I would say the answer to your question is going to be tough here, it's probably going to be.
<unk>.
Oh, thank you for that Andrew.
Similarly in performance additives, you expect a similar or a typical seasonal performance of that business or perhaps some further weakness given the macro backdrop.
I think we expect it to be similar I think if you look at our performance additives business performance in the second quarter and look at historical patterns and we.
There's no doubt about it in the second quarter, we suffered.
From global sort of construction weaknesses, and we expected to see a bit of a better seasonal uptick which we didn't get.
Still have a pretty decent earnings result, because we've made some improvements to that business. So.
I think we're pretty positive about seeing a pretty decent return from outages in the third quarter, David I will say that we've got a pretty easy comp compared to the third quarter of last year. So we certainly expect it to be much stronger than what we had last year.
Notwithstanding a seasonal decrease.
Into the third quarter from the second.
Very good thank you.
Thanks, Dave.
Our next question comes from Vincent Andrews with Morgan Stanley . Please go ahead.
Hi, guys. This is a well paying on group Vincent Thanks for taking my question.
So you guys had a $103 million kind of inventory headwind to working capital during the quarter.
That's a function of a more I guess purposeful inventory build given the lack of inventory you'd called out in the past or I guess, it's just a function of the weaker architectural demand.
And then how would you kind of characterize your own inventory position I guess kind of in the second quarter here.
Yes, I mean look it does it does vary I mean, we didn't intentionally set out to grow inventory I mean, obviously with inventory valuations being what they are.
Very highly incentivize from our cash program to <unk>.
Constrain are minimized.
That said there was some deterioration in coatings in different plants make different products. So we did see a little bit of a modest inventory build within that within that number on finished goods.
A bigger and more sort of a large issue for us in the quarter was <unk>.
Timing of feedstocks.
Frankly that was quite a material number within the in the negative 103 in inventories.
Mentioned, the higher cost, but as we see inventory in the chain I mean, we're taking all steps we can to control our raw materials on our finished goods.
Don't see customers quickly restocked here.
They seem to be managing there. So I would say that from our evidence inventories in the chain are still relatively low, but clearly not quite as tight as they were.
Okay.
Got it and then I guess I think in the past you've talked about using that cash that you would see from that settlement.
Restructure debt, but I guess, given the rising interest rate environment.
Worked against you there are there any changes to your plans or is that still how you all.
Is that still how you plan on using that.
Yes, well, we continue to look for the right opportunity to use some of the cash that we have on our balance sheet and pay down our debt.
Ideally, we would do that in connection with an optimization of our capital structure.
And so we continue to look for the right window.
In order to do that so stay tuned.
Got it thank you.
Our next question comes from John Mcnulty with BMO capital markets. Please go ahead, yes. Good morning. Thanks for taking my question a lot a lot of my questions have been asked already but I guess, what I wanted to dig into a bit you've got a couple of assets in Germany, I guess can you help us to understand.
What happens if.
If the spigots from.
Washington gas get cut off to Germany can these plants operate do you have a way to kind of procure the energy that you need to run the facilities is there a way to think about that.
Yes, I mean look I think some general comments imply first and foremost.
Attempt to and have been achieving a pretty close relationship with the authorities and Jeremy just to make sure. The dialogue is open and we've been.
Positive about the engagement in regards to the chairman.
Authorities are showing some understanding of the cost based situation.
Our energy and looking at arrangements that could help us in our plants in Germany, So thats, a very positive signal because it shows.
Their willingness to engage in the understanding of the potential problems now the second point I'd like to make is we're pretty positive about the fact that many of the products, we make in Germany going pretty sensitive applications pharmaceuticals and the like.
We think that there's a.
Good chance with the German government sees and understands that they have to keep these products flowing.
As building block products into other industries.
Should that be.
We don't know this yet but should there be any allocation of rationing regime put in place. So we think we sort of well positioned in that would be my second point and then thirdly look of course ultimately we have got no guarantees that there wouldnt be some impact we're staying very close to we do have the ability to moderate plants in a way.
That sort of maximizing whatever gaps we would get better.
But of course, clearly that is a concern on a go forward basis with Windsor approaching.
With European and German assets.
As to the energy availability in.
We can't speculate a lot we don't know what's going to happen.
We are closely talking to those authorities is what I can tell you.
Got it no that's.
Helpful. And then maybe one question just on the performance business. So you indicated you didnt see the seasonal construction lift the way you normally would was that just because the construction season didn't actually play out the way it normally does or where their supply related issues, where maybe theres a little bit of catch up that you can get in the third.
Quarter, I guess, how would you characterize what was driving that kind of lack of seasonal seasonal uplift.
Yes, I mean, I would say it was soft demand I don't see it necessarily as a catch up.
On the on that though I don't see also deteriorating I think we said that we expect to see us.
Delivering a pretty decent third quarter of course.
Our EBITDA performance adaptive franchise, but the volumetric damage was done in our colors business, where both in Europe and North America. After the same both of those regions, which are our main sales regions. We saw some down draft in construction base demand.
At the volumetric level got.
Got it thanks very much for the color.
Okay.
Our next question will come from Laurence Alexander with Jefferies. Please go ahead.
Hi, Good morning, this is Kevin Estok on for Laurence.
Had a question on the about the conflict in Ukraine Hi.
Just wondering how the situation, perhaps interrupting your non energy related supplies and then more broadly just curious I guess, how you expect supply constraints to more broadly evolves globally over let's say the remainder of the year.
Yes, I mean, I think that where we are.
On the Ukraine situation is it's not really materially impacting our overall business operations and performance either on the supplier.
Selling and.
But I don't think we feedstock situation sort of like improving a little bit our main availability based issue for raw materials comes down to the previous question on energy really it's having sufficient gas in the north.
With stream one pipeline what runs in what May play out in that.
Political.
<unk> around gasoline not done number one supply chain challenging concern I think across the board, we're pretty much getting everything else, we need across all our different factories and product groups.
Okay. Thank you.
Our next question comes from Arun Viswanathan with RBC capital markets. Please go ahead.
Great. Thanks for taking my question.
I just wanted to circle back to the energy cost inflation side so what.
What is natural gas I guess as a part of your cost structure and you know given.
Given that you do have some production in Europe .
Is this a little bit more onerous for you guys I know it could be but I just wanted to see if theres any kind of metric you can give us as far as maybe as a portion of your cost structure, how much of that is in Europe , and so on and so forth.
Yes, I mean look we have the preponderance of our tier two capacity is based in Europe , we have five facilities across Europe , they're all in different sort of situations to energy I would say there is some concern around Germany, we've talked about that.
We think the UK, Spain is pretty well positioned.
Scaling is probably somewhere in the middle and of course, we are running that at a lower rate as well. So I think that energy is a large a significant and growing portion of our cost structure.
Historically feedstock has been the biggest single spend item that remains the case that it is the biggest single spend item, but of course the energy Bill.
Look at some of the volatility we've seen through the course of this year.
Has been significantly higher right now than some of the sort like Asia or U S. Based facilities, taking these energy products. So we can't deny that.
I think you should think about.
The energy component being a large second largest.
Part of our direct cost structure and taken together I would say now that the feedstock and LNG.
I'll, probably in the 70% plus of the of the overall cost structure of the raw materials in.
Our goods, we buy to make the product not our indirect costs.
Yes, Arun just to put a little bit of a finer point on that.
Think about energy as a as an entire basket comprising about 15% to 20%.
Of our cost of goods sold.
And there's a range, depending on which business unit that we're talking about that that ought to give you a feel and a sense.
For how meaningful energy is to us recognizing that we're much more sensitized to ore feedstocks than we are energy.
Great. That's very helpful. Thanks for that and then I guess just the second question was just on the market outlook itself. So I think.
Some of the industry trade forecasters have price increases in Q3, but.
That would be potentially mostly on on this inflation, both on energy and feedstocks.
Is that correct or are we would you would would it actually do you expect slight margin expansion as you look ahead.
Or is it mainly to cover those rising.
Costs. Thanks.
I think we'll be looking to target to offset those.
Input costs that we see inflationary pressures in the third quarter on our pricing across most of our press release all of our portfolio.
And we see that in the third quarter demand.
Hold onto.
Over the second quarter in August as we think we're going to get.
Set for a pretty decent third quarter. We also note some commentary by some major consumers of our products about.
What they see in terms of the second half trajectories in Asia, particularly on some in Europe as well.
Thanks.
Okay.
Our next question will come from Eric Petrie with Citi. Please go ahead.
Hey, good morning, Simon and Kurt.
Good morning, good morning.
And CIO to what's your order book visibility like and.
We talked about last quarter restocking risks upside.
That still second half or is that going to be pushed into 2023.
Yes, I mean I think that.
If you look at it's varies by region I mean, I think we see the demand holding up well in North America.
And I think in Europe of course, there has been some demand softening.
We think it feels more like some sort of correction because we haven't seen.
Great restocking some customers are concerned, particularly larger ones about potential gas rushing and knock on effects on their own supply base. So I think they are sort of leery of running their inventories down. So the two are there could be some restocking, but we see.
Asia is probably we don't see yet but I.
Think it is going to be rebounding so.
Certainly soft for us and we would expect to see some pickup during the second half that.
As I said earlier, we don't see LNG really high level of inventories in the chain and we know.
We don't see those saw ballooning up if you like in the second half.
And then I know your exposure to China is relatively smaller compared to some of your competitors, but how much the China lockdowns impact demand and do you think that was attributable to the higher exports.
Yes, I mean look there has been a real impact in China demand has been down no doubt about it even though that.
Hi, Lockdown was lifted.
Quite recently.
It's been a big impact on local demand and as annuity a question highlights the Chinese exports globally.
While they have come down sequentially in the second quarter on a year on year basis, they are still up.
And.
To what by way of compensating.
For that local demand Youre right, we don't have a big window into China, but the window. We do have shows you had a pretty weak pretty weak demand outside of specialty products.
Okay, and lastly, if I may whats the timeline for the landfill capacity, reaching full utilization at Scolino running.
One third of operating rates.
Yes, I mean, I think we've got we still have a window to work with but we are going to be a bit careful here.
That we keep the continuity of the plant running we've taken this precaution to come down.
We don't have an unlimited time, just sort of out of quarters, we'd like to have sorted out already.
As we get through into sort of early 2023.
Should we shouldnt have further information in <unk> to be able to update you on where we are on these approvals.
Great. Thank you for the color.
Thanks, Mark Thanks, Eric.
There are no remaining questions at this time.
That will conclude our question and answer session.
I would like to turn the conference back over to Simon Turner for any closing remarks.
Okay. Thanks, operator, and thanks to everyone for joining our second quarter 2022 earnings call. Thank.
Thank you for your continued interest in Venezuela, we look forward to speaking to you at the upcoming in person events and of course, please feel free to reach out to Kate with any additional questions. You may have thank you.
Okay.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.