Q4 2024 Huntsman Corp Earnings Call
Speaker Change: Greetings and welcome to the Huntsman Corporation fourth quarter 2024 earnings call. At this time all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation.
Speaker Change: non-GAAP financial measures such as adjusted EBITDA, adjusted net income or loss and free cash flow you can find reconciliations to most directly comparable GAAP financial measures in our earnings release, which has been posted to our website Huntsman Dot com I will now turn the call over to Peter Huntsman.
Ivan: Ivan Thank you very much that exciting preamble and thank you all for taking the time to join US This morning.
The purpose of my taking a few minutes to begin these calls theres not simply adding.
Ivan: More to our script it is to make sure that we're sharing with you. The most recent data.
Ivan: And for me to share our views as to the direction of our company and key markets in real time.
We've given you.
Ivan: Outlook.
Ivan: First quarter on a divisional basis, we're often asked why we don't give yearly guidance and so I look at markets and the geopolitical scene over the past two weeks I think this provides ample reason why we are reluctant to try to plan much beyond three to six months as it relates to market conditions.
Ivan: I'll come back to those most recent conditions in a moment.
Ivan: I would also like to give some further clarity on the often used phrase we will focus on the things, which we can control.
Ivan: On our earnings call in October of 2022 reporting on the first quarter to see the full impact of pollutants invasion of Ukraine, and Europe's a failed energy policies. We stated that a new normal in Europe would include higher gas prices and recessionary conditions.
Ivan: Offset these actions, we announced initiatives to cut cost in excess of $40 million, we delivered those savings in less than 12 months.
Ivan: As it became clear that Europe's focus on de industrialization was growing faster than anyone expected. Many global markets were slowing we took further steps. We've continue to do so through 2023 and 2024. These include the closure and relocation of our ever Berg, Belgium RMB.
Ivan: And European headquarter office offer.
Ivan: This is in the U K, Brazil, Argentina, and Chile, we closed or sold polyurethane system houses in Malaysia, Thailand, Indonesia, Italy, and today announced the closures of our Degen Dorf, Germany, and King's Lynn UK and locations.
We've opened and global business service hubs in San Jose Costa Rica, and Krakow, Poland, We expanded our Kuala Lumpur, Malaysia site and now have approximately 600 positions.
Ivan: <unk>.
Ivan: Patients.
Ivan: We have reduced head count and costs in Basel, Brussels and the woodlands.
Ivan: And our advanced materials divisions, we've closed our BLA our capacity in Alabama and sold our Harrison City, Pennsylvania facility. We also announced today that we'll be taking actions with regards to our Moores, Germany, Malaysia and hydride facility.
Ivan: Also in early 2023, we closed on the sale of our textile effects division.
Ivan: We're not sitting about wondering what to do about Europe and other troubled areas decisions executed have more than offset over $150 million of global inflationary costs since 2022.
Our SG&A drop by more than 6%, we continue to assess our global assets and all of our divisions as I believe this industry will continue to see consolidation divestitures and acquisitions.
Ivan: We will not only look at our cost structure, but also our asset footprint I believe that we're well positioned to benefit as demand and pricing recover.
Ivan: Lastly, I'd like to comment about our 2025 outlook rather than try to predict our earnings outcome a year from now we need to focus on capitalizing on today's market forces.
Ivan: Just in the past two weeks two such forces have emerged that have potentially a longer term ramifications.
Ivan: The first of these are the recent announcements on tariffs by and large the vast majority of what we produce in Europe. The U S and China stay within those regions. In fact actions to date that have focused on imports into the U S will likely help our earnings.
Ivan: Needless to say these tariffs are changing almost daily.
Ivan: I feel we are quite well situated we can ship as we ship very little across the Atlantic or the Pacific Ocean.
Ivan: The second shift we are seeing is around recent price announcements and many of our products.
Ivan: I believe that MDI was among the first of the major chemical chase the drop in demand and margins. This was due to the simultaneous rise in interest rates it slowed north American construction and the collapse of the Chinese housing market, Europe's industrial decline and overcapacity is projects announced.
Ivan: Pre COVID-19 came on stream.
Ivan: Huntsman remained incredibly disciplined with respect to pricing, we previously announced lost volume due to this week.
Ivan: We've stated on past calls is that demand needs to return before pricing picks up.
Ivan: As we have reported in the past few quarters, we've seen volumes improve as D. Inventory has ceased and demand is tepidly returns I believe.
Ivan: Leave that we're seeing some early signs of recovery in pricing and margins return.
Ivan: As of today, we are saying publicly reported polymeric MDI prices in China at a three year high Huntsman.
Ivan: Huntsman has also announced a series of price increases in North America as well again as publicly reported we have seen others pushing for similar actions. It is challenging to say if these actions will be successful and how soon and to what segments. They will stick. However, as we sit here today.
Ivan: And it's fair to say that there are more positive than negative movement in the MDI industry.
Ivan: My personal feeling is that MDI was one of the first major chemical change the drop in may well be among those that show signs of recovery earlier than other chains.
2025 will be a year, wherein we will continue to minimize our cost structure optimize our asset footprint and aggressively push for margin expansion across the board.
Ivan: In short, we will not be sitting still this year.
Ivan: With that operator.
Ivan: Lets open the lineup for any questions.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would 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.
Speaker Change: Press Star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, we ask that you. Please limit yourself to one question and one follow up question. One moment. Please while we poll for your questions.
Operator: Our first questions come from the line of Patrick Cunningham with Citibank. Please proceed with your questions.
Patrick Cunningham: Hi, good morning, Thanks for taking my questions.
Patrick Cunningham: So you know in the midst of the restructuring actions you are it seems like the downstream piece is a big part of this but in the past you've kind of talked about this being part of the business you like you've already gone through a lot of fixed cost takeout. Firstly can you help us understand the size and scope of these actions why is this an area of focus or not and if theres any concern in being able to fill.
Patrick Cunningham: Fill that demand improvement when it does come.
Patrick Cunningham: Yes, I think that is as you look at this across the board, we're going to calibrate our business around what customers need and what they're willing to pay for and as we see some of our customers locating relocating I should say out of Europe and moving.
Patrick Cunningham: Manufacturing footprints and assets to Asia and the U S.
We obviously are going to be following them.
Patrick Cunningham: And manufacturing further downstream capacities in those areas. We've also announced in previous calls that we've been able to consolidate some of our system houses by multi.
Patrick Cunningham: Well multi using assets.
Patrick Cunningham: And these various system houses that used to be that you would build a system house that was built around the automotive industry and one that was built around the insulation industry or one that was built around a particular region or customer cluster.
Patrick Cunningham: In Europe for example, where we have perhaps the most developed downstream business.
Patrick Cunningham: I think over the years have done a much better job in being able to utilize one location to do what used to be.
Patrick Cunningham: Two or three locations and expanding the capacity of that location, both from a technical and from a volume point of view. So we've seen the market change we've seen fewer customers that are demanding the formulations and the products coming out of system houses.
Patrick Cunningham: And frankly, if customers are not going to pay for the services that are rendered from those.
Patrick Cunningham: We'll make decisions and we will be cutting back. So I think it's a combination of all of those areas and youre going to see a preponderance of that taking place.
Patrick Cunningham: In Europe, but we've also announced.
Patrick Cunningham: We withdrawn from some of the southeast Asian markets, we find that our margins of supplying raw materials out of China.
Patrick Cunningham: For us at least that was a better value proposition than moving downstream and some of these countries that where we had to have quite a bit of local expertise and cost to be able to handle those so it really will vary region by region.
Patrick Cunningham: Understood.
Patrick Cunningham: The commentary and I know you don't guide for the full year, but in performance products.
Patrick Cunningham: You seem to talk about margins improving earlier this year I know you have some investments there that are adding to the EBITDA line, but what are the markets driving this volume improvement or is it a significant mix improvement just anything underpinning that level of confidence in material margin.
Patrick Cunningham: Yes.
Patrick Cunningham: But I do think good performance products will be gradually improving throughout the year.
Patrick Cunningham: And.
Patrick Cunningham: We're going to see that mostly come about through the recovery.
Patrick Cunningham: In the construction area as it pertains to the <unk> business and in our amines business is going to be everything from polyurethane spray foam catalysts to the raw materials going into the AG industry.
Patrick Cunningham: To our most recent expansion in conroe taxes, but it will be servicing.
Patrick Cunningham: Servicing the chip industry with solvents, and cleaning solutions and so forth that expansion is complete and we're in the process right now of getting qualifications from customers. So we've actually book sales coming from that but I wouldn't expect to see us running at that run rate that we've given earlier forecast on until later.
Patrick Cunningham: In the year.
When we're fully qualified.
Patrick Cunningham: On a broader customer base.
Speaker Change: Thank you our next questions come from the line of David Begleiter with Deutsche Bank. Please proceed with your questions.
Speaker Change: Thank you good morning, Peter.
Speaker Change: Peter on your mosaic our announcement today can you provide some more color as to why now given maybe a potential rebound in European construction.
Speaker Change: How much is that business I assume a negative EBITDA, how negative is it and what's the potential cash costs for sure on that business down. Thank you.
Speaker Change: And David always good to hear for you, Yes, we've received.
Speaker Change: A couple of different inbound inquiries on.
Speaker Change: That business as you can well imagine in a world that's rapidly changing with tariffs and trade patterns and so forth.
Speaker Change: We're going to pursue those calls in and we're going to see where values are and what we want to do with that side longer term.
Speaker Change: Longer term as we've looked at <unk>, we've looked at the downstream <unk> industry.
Speaker Change: We've seen Europe become.
Speaker Change: A far more competitive area with imports coming in particularly from China from Turkey in places in Eastern Europe, I think youre, probably seeing a lot of Russian materials in downstream.
Speaker Change: Products in Russia.
Speaker Change: Find their way into the European market in spite of sanctions and so forth.
Speaker Change: And I think when we look at where we've got a cost advantage what we've got.
Speaker Change: Our strong market position and so forth is in North America, So we're going to weigh those.
Speaker Change: Those issues and see if we're the best owner for that facility longer term.
Speaker Change: We're going to see.
Speaker Change: Yeah, how we feel about Europe from an industrial basis.
Speaker Change: Malaysia as you know is very sensitive to raw material costs on butane.
Speaker Change: Energy byproduct values and so forth and all of these things have to be taken into consideration. So that's what we're doing we're not going to be sitting here a year from now wondering what to do with outside I think that will make a decision here.
Speaker Change: And in pretty short order.
Speaker Change: Very good and just on the polyurethane he mentioned some share gains as well as our additional growth from the splitter in 2025.
Speaker Change: That's more color as to what's driving those share gains and potential uplift from those actions in 'twenty five.
Speaker Change: I think in 25, particularly in North America.
Speaker Change: You know I think we certainly wanted to be able to grow with the market.
Speaker Change: As we look at the the nice gains that we've had over the last year or two and.
Speaker Change: And capacity utilization so forth, we are still below pre COVID-19 numbers.
And MDI demand, we still have room for expansion I think that that.
Speaker Change: Will will include perhaps.
Speaker Change: Minority of what I believe that we need to be where we need to be expanded 2025 needs to come about through market growth, but there's also some applications and customers and so forth.
Speaker Change: That we lost over the last year over <unk>.
Speaker Change: Stands what we took on pricing on trying to maintain pricing and so forth and we are very hopeful that we'll be getting some of that back that's not something that happens overnight and it's not something just because you dropped the price you get the business back so it's going to be because of service technical support.
Speaker Change: Full value proposition, that's not something that happens in.
In a single quarter. So I believe that we'll continue to make further progress through 2025.
Speaker Change: David you can assume.
Speaker Change: If the market develops as we think about a $15 million benefit year on year from the splitter at our Geismar.
Thank you. Our next question is come from the line of Frank Mitsch with Firming in research. Please proceed with your question.
Frank Mitsch: Hey, good morning.
Frank Mitsch: At the risk of playing armchair psychologists, Peter it sounds like you're more optimistic than we've heard you in quite some time, so I'm curious as to what might.
Speaker Change: It might be more specific in terms of what's driving that optimism if I'm, if I'm reading that correctly or is it a what you're seeing out of China post post new year's I mean, any sort of color there would be helpful.
Peter Huntsman: Yeah, Frank always good to hear from you.
Speaker Change: Yeah, and you're not the first person that has tried to provide free psychiatric counseling to make and I appreciate that.
Peter Huntsman: Yes.
Peter Huntsman: As we look at the markets right now and again I don't want us to be over reading this.
Peter Huntsman: Pricing actions that are taken in the first quarter of 2025.
Peter Huntsman: <unk> will add quickest be felt at the beginning of second quarter right. So.
Peter Huntsman: Yes, I mean, we go out today, and we say, we're raising prices today and I'm just speaking from Hudson's perspective to Huntsville customer not speaking about our competition and what they may or may not be deciding on here.
Peter Huntsman: China is a very large polymeric MDI consumer and the published price in China.
Peter Huntsman: Is one that's quite public and the published price by and large is fairly accurate to a very large chunk of the market in China those prices, where we have seen them over the last two quarters have been remarkably stable and they've been at about a three year high.
Peter Huntsman: So again at a place where you would think that with the capacity that comes on and so forth there seems to be fairly good macro demand and disciplined.
Peter Huntsman: Note that we are not seeing any I would say material stimuli in China.
Peter Huntsman: Pushing greater demand and so forth, we keep hearing rumors that thats forthcoming that it was going to come right at the end of the Chinese nearest over so far I haven't seen any but China as we said probably about a year ago. We think China is going to see a very gradual recovery and I think that's going to continue through 2025.
Peter Huntsman: As I look at the U S. A.
Peter Huntsman: We are.
Peter Huntsman: This is in the public domain.
Peter Huntsman: We have gone out with a series of price increases and I wanted to just emphasize the U S market.
Peter Huntsman: Youll have price points in the U S market, because you've got a very commoditized polymeric all the way down to downstream adhesions and so forth yeah price points all over the place so when we talk about.
Peter Huntsman: 10 cents per pound or <unk> 10 per pound that may not be effective.
Peter Huntsman: Immediately it may not be effective across the board.
Peter Huntsman: Also remind you in the U S. We also have a number of contracts, especially in the building and trades.
Peter Huntsman: Youll see.
Pricing pass through will agree on a price and the price only move with raw materials now those have reopened or is usually every six to 12 months, depending on the contract and so forth, where we can go into negotiate an expansion on the margin component at my point in the U S frankly.
<unk> is in the contracts timing variability is all over the place what I am seeing in the U S that I have not seen for at least the last two years or so is.
Speaker Change: Or multiple.
Speaker Change: Layers, it's the first time.
Speaker Change: Announcing price increase in multiple segments again, it's not all the same price. They saw the same segment saw the same timing.
Speaker Change: But I have not seen that for about two years or so so it tells me that with the end of the inventory.
Speaker Change: A gradual recovery of what we're seeing kind of getting back to that million plus homes.
Speaker Change: Yes.
Speaker Change: The continuity and consistency and frankly, just having operated for the last two plus years at below well below cash costs reinvestment in North America.
Speaker Change: It feels like there is.
Speaker Change: There's more stickiness to the price discussions we've had thus far and with it when you are the only one out there.
Speaker Change: Pushing for a price increase it's pretty lonely I don't feel.
Speaker Change: We are the only ones why I don't feel I know, we're not tier ones out there pushing for a price increase right now so.
Speaker Change: A whole variety of factors in Europe.
Speaker Change: Say that Europe is going to continue to be a struggle they've got a lot of imports coming in they are not they haven't decided yet do they want to try to protect the industry do they want to do anything on energy costs. They won't do anything on tariffs.
Speaker Change: I think everybody in Europe, just just trying to wait to see what tomorrow brings.
Speaker Change: That's very comprehensive thank you if I could follow up on the U S in MDI.
Speaker Change: In China, you know the.
Speaker Change: The U S is looking at a preliminary anti dumping probe on Chinese MDI coming in I'm curious if you have any thoughts as to how that may play out and what might be the impact and when might be the impact for you guys.
Speaker Change: Well.
Speaker Change: We are participating.
Speaker Change: And that is we have been.
Speaker Change: Given our request.
Speaker Change: From.
Speaker Change: From the U S.
Speaker Change: C, which then will take its recommendation to the department of Commerce, who then gives it back to the ITC that probably gives it back to the department of Commerce and that then is decided by somebody who's getting apparently getting a check is 134 years old from social security.
Speaker Change: My point is right and these sorts of things by the time there is a final adjudication.
Speaker Change: It probably won't be any sooner than a year or so from now but.
Speaker Change: But given where the U S is and given some of the potentials.
Speaker Change: That are out there.
Speaker Change: Think that it would be a negative.
Speaker Change: If the Commerce department were to rule.
Speaker Change: There is dumping that is taking place here, we certainly I believe would be a benefactor of that.
Speaker Change: Thank you our next questions come from the line of Jeff Secaucus with J P. Morgan. Please proceed with your question.
Speaker Change: Yeah.
Speaker Change: Thanks very much.
Speaker Change: I think your EBITDA projection.
Speaker Change: Performance products and so.
Speaker Change: About 25 to 35 for the first quarter, so call. It 30 and last year you did 42.
Speaker Change: So why are we down 30% in performance products.
Speaker Change: And are we going to continue at that level.
Speaker Change: In 2025 can you can you analyze the EBIT a decrease for the first quarter.
Speaker Change: Sure.
Speaker Change: I'll comment and.
Speaker Change: Most of that is going to come around the drop off that we've seen in profitability with our mosaic facility in Europe.
Speaker Change: And do we intend to that would be the lion's share of that do we intend to continue that sort of a run rate absolutely not.
Speaker Change: We are taking we are taking cost initiatives and cost measures throughout 'twenty five that will be announced throughout the year. We've got capacity that will be coming on in conroe, we got capacity that will be coming on to further our catalyst chemistry.
Speaker Change: And pet photo Hungary, there'll be coming on in mid year I don't like.
Speaker Change: Forecast that show the second half of the year hockey sticks, but we do have capacity that will be coming into the market.
Speaker Change: At the end of the first half and that volume will be coming into the market in the second half.
Speaker Change: And I believe that as we've seen the inventories within hopefully quite clear on past calls.
Speaker Change: Performance products and a lot of the amines chemistry in particular really saw a D inventory that took place on that supply chain.
Speaker Change: Later than polyurethane and even advanced material and.
Speaker Change: We will see a gradual recovery of that taking place throughout the year.
Speaker Change: And in and polyurethane, what's the euro per year of volume growth either that you expect in the first quarter of 'twenty five or that you've experienced year to date.
Speaker Change: I would think that's going to be around about 5%.
Speaker Change: As we look at the first quarter versus first quarter first quarter, 25% of first quarter 'twenty four so somewhere in that low single digit.
Speaker Change: And mid singles and relatively consistent Jeff with what we sold in 2020 for continued growth, which is obviously important.
Speaker Change: So the so the color that Peter gave around around pricing and I would just though that that's based on recovery not on growth that may sound like an oxymoron, but again I think these markets are still recovering I don't believe that we're seeing real growth taking place yet from the pre COVID-19 levels.
Speaker Change: Thank you. Our next question will come from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions.
Vincent Andrews: Thank you and good morning, everyone.
Vincent Andrews: Wondering if you could speak a bit more to volume expectations in the European market you had some.
Vincent Andrews: Some recovery there last year.
Vincent Andrews: Just obviously with all the uncertainty there.
Speaker Change: There just wondering what your what you're expecting.
Vincent Andrews: In Europe.
Vincent Andrews: I would like to be more optimistic about Europe, I think it's going to be rather flat and a lot of the volume pick up that we saw this year versus last year, we had a pretty bad comparison last year as we add an electrical outage.
Vincent Andrews: Our Rotterdam facility that cost us.
Vincent Andrews: Some volume so yes, as we look at.
Vincent Andrews: As we look at that it's going to.
Vincent Andrews: The comparison, probably makes it a bit skewed I'd also just remind you that at the latter part of this quarter first in the beginning part of next quarter.
Vincent Andrews: There is a 40 day turnaround and just to remind everybody. This is a cluster turnaround that involves.
Vincent Andrews:
Vincent Andrews: A number of our raw material suppliers and even some of our downstream.
Vincent Andrews: Customers.
Vincent Andrews: Everybody that is kind of involved on that entire <unk>.
Vincent Andrews: <unk> channel in Rotterdam.
Vincent Andrews: I'll come down once every four years in an effort to try to do all your maintenance.
And the key is to come.
Coming back up you can only come up as fast as the slowest lease competent operator.
Vincent Andrews: Ken can bring their facility up and running so.
Vincent Andrews: Hopefully that will be.
Vincent Andrews: 40 days or less.
Vincent Andrews: With probably slightly more than 50% of that in Q1.
Vincent Andrews: The rest of that being in Q2.
Speaker Change: Okay, and then if I could just ask a follow up on all of your pricing commentary, which was very helpful. If.
Vincent Andrews: If I heard what you said it correctly.
Vincent Andrews: It sounds like Youre, suggesting it's possible that there could be some good price achievement. This year that would not come at the expense of volume, meaning that the volume needs to go up with sort of just the overall recovery in the markets.
Vincent Andrews: But that she might still also be able to get prices that there wouldn't be any trade off between the two is that because that a correct interpretation of what you said.
Vincent Andrews: Yes that would be correct interpretation of if we're sitting here.
Vincent Andrews: Reporting in first quarter that we've lost market share and we're giving up volume in order to get pricing.
Vincent Andrews:
Vincent Andrews: We will not be happy.
Vincent Andrews: Okay.
Speaker Change: Thank you our next questions come from the line of John Roberts with Mizuho Securities. Please proceed with your questions.
Speaker Change: Thank you do you think the reciprocal tariffs will change the trade flows for your customers that could impact you.
Do you think it's just going to change price and there'll be minimal change in trade flows at your customers.
John Roberts: I think John it's really too early to tell exactly how that is.
Speaker Change: I'm always surprised when tariffs are in.
Speaker Change: They usually are not as damaging as people expect them debate on the other hand, where we do see changes that usually comes from areas that were not expecting either.
Speaker Change: I know that sounds like a nebulous answer, but oftentimes decisions will also be made.
Speaker Change: Months before tariffs and anticipation of them coming people will be building up stockpiles, you're seeing buying habits, changing and so forth and this particular round.
Speaker Change: I'm not seeing a lot of inventory build from.
Speaker Change: From our customers again, I can't speak for others, but from our customers I'm not seeing a big what I would call it a tariff.
Speaker Change: Buildup so.
And maybe that's because again they are changing almost on a daily basis as to what's valid what's not and who is getting the eldon who's not so.
Speaker Change: Im not sure that'd be pretty tough gamble that take saying, we're going to build inventory and tie up working capital today for something we think may be coming in may or June of this year on tariffs.
Speaker Change: And then the 2025 supply chain financing program is that a standard factoring program. So the free cash flow increase is temporary until you decide to turn that program.
Speaker Change: John.
Speaker Change: Phil I'd characterize it as a standard of supply chain financing program.
Speaker Change: And.
Speaker Change: I think we'd indicated that we're targeting about $30 million benefit from that program Youll correct. If we chose to end that program then theoretically that would go away.
Speaker Change: How we're viewing it as a structured program for the future for us.
Speaker Change: The company.
Speaker Change: Yeah.
Speaker Change: Thank you our next questions come from the line of Salvator Tiano with Bank of America. Please proceed with your question.
Speaker Change: Yes, thank you very much.
Speaker Change: I wanted to follow up a little bit on <unk>.
Speaker Change: With that understanding specifically because you.
Speaker Change: You know the China tariff should already be in effect. So is there anything youre seeing with regard to for example, imported MDI or does that you would expect them to week sad because the smelter.
Speaker Change: Theoretical scenario at least something thats already in place and secondly, as we've talked about a potential anti dumping duties for MTI.
Speaker Change: And also for our boxes.
Speaker Change: In the U S. How do you think this will play out.
Speaker Change: Together with that standard tires, meaning could this be implemented on top of retirees will be one or the other so the 10% China tariff goes away if the U S goes with something dumping duties how.
Speaker Change: This workout.
Speaker Change: Well I'll try to get the first part of the question, let Phil answer the second part of the question.
Speaker Change: Alright.
Phil: We're looking at again, I don't think that Youll see instantaneous cause and effect on tariffs.
Speaker Change: A large European or Asian company that chemical companies importing into the U S.
Speaker Change: If youre a Chinese company, you have been paying 30% and products like <unk> and hydride in MDI you are now paying 40% dip.
Speaker Change: Depending on how.
Speaker Change: Trade negotiations go and how rulings and so forth could come with the Commerce Department.
Speaker Change: You go higher than that.
Speaker Change: Which of those companies may say I'm not going to.
Speaker Change: Produce and move product from from.
Speaker Change: From China may be moving it from Europe, or some other location that you might be able to divert some of those tariffs.
But usually they are going to add costs somewhere in your supply chain.
Speaker Change: So.
Speaker Change: And that I believe over time puts pressure.
Speaker Change: On margins.
Speaker Change: Or to put prices through so again I don't believe that what we're seeing today is necessarily tariff related.
But we may see in the second and third quarter of 2025.
Speaker Change: You may see some some pressure because of that.
Speaker Change: So.
Speaker Change: <unk> already had a 30% tariff so add another 10% to that from from from China. So that's why we are that's why we are as you say today.
Speaker Change: As the investigation with the ITC goes on I mean, typically those are then additive to those tariffs, but let's just see how the actual investigation evolves over the over the coming months.
Speaker Change: Okay, perfect and I wanted to pull up a little bit on potential strategic reviews are I mean, the past few years, including now the focus has been on underperforming assets I'm trying to see whether there's something kind of a divestiture or needs to be shut down but.
Speaker Change: Well, what about considering options for assets that are actually performing well like German advanced materials Division.
Speaker Change: As you highlighted the margins have been stable despite.
Speaker Change: The turmoil and given where your stock price is the foundation for hotspot, perhaps it would make more sense instead of focusing on underperforming assets to focus on realizing the value of the market does not seem to have someone in your best assets is something that you would consider.
Speaker Change: Well I would remind you that our advanced materials in Europe.
Speaker Change: Some of our most.
Speaker Change: Valuable and highest margin assets, we have in the company today.
Speaker Change: Again, that's one of the most high cost countries in the World Switzerland.
Speaker Change: Supply in European customers. So.
Speaker Change: I don't want to completely write off.
Speaker Change: Europe, though I guess the Swiss are always argue if they're part of Europe or not.
Speaker Change:
Speaker Change: I would just say that I don't want to paint all of Europe is that we are.
Speaker Change: Looking at all assets there in the same and the same thing I will just repeat what we've said on previous calls.
Speaker Change: That if we have an opportunity to expand if we have an opportunity to exercise.
Speaker Change: Merger M&A in this company.
Speaker Change: We're going to be leaning very heavily towards looking more like advanced materials.
Speaker Change: Any of the other divisions and that's not to say.
Speaker Change: We don't love the other divisions, but it has to say.
Speaker Change: We do want longer term.
Speaker Change: That margin.
Speaker Change: The lack of volatility and.
Speaker Change: Our global footprint that I think is going to be more conducive.
Speaker Change: To investors. So yeah, we're not going to look at everything the same.
Speaker Change: Thank you our next questions come from the line of Kevin Mccarthy with vertical Research partners. Please proceed with your questions.
Speaker Change: Yes, Thank you and good morning, Peter would you comment on MDI industry operating rates by region, and where you see the tightest in loosest market conditions today.
Speaker Change: I believe that.
Speaker Change: Youre going to see the Lucius market conditions.
Speaker Change: Today.
In Europe.
Speaker Change: And youre, probably going to see some of the tightest market conditions in the U S.
Speaker Change: But.
Speaker Change: Having said that.
Speaker Change: I think that there is there is factors when you factor in imports.
Speaker Change: Impacted import imported material, it's going to take.
Speaker Change: When you look at certain regions are exporting more than they're importing MDI.
Speaker Change: It's tough to just say that this is just <unk>.
Speaker Change: Three different numbers three different regions and never the Twain shall meet.
Speaker Change: But I think by and large you probably have.
Speaker Change: The highest amount of excess capacity.
Speaker Change: Would add the oldest and highest cost capacity is in Europe.
Speaker Change: Look at the global operating rates.
Speaker Change: I would guess, it's probably north of 85 and south of 90%.
Speaker Change: Yes.
Speaker Change: Mid to high Eighty's sort of a number.
Speaker Change: And again, that's going to depend again, how many companies are.
Speaker Change: Shut down at any given point for maintenance.
Speaker Change: <unk> flows and you put it a boat a ship on the water, it's going to be out of action that you're going to have a large load of material there for months potentially.
Speaker Change: We're not.
Speaker Change: I used to give a lot more focus to that end.
Speaker Change: The capacity utilization I think it's a number worth following but I wouldn't read too much into it because there are a lot of variables and factors that go into that.
Speaker Change: Understood and then as a follow up in the prepared remarks that you released yesterday evening, Peter I think you talked about escalation of energy in Europe, and specifically natural gas in the region around $15 per M. M B to you.
Speaker Change: How are you and and just competitors broadly handling that in other words do you foresee a return to some sort of surcharge regime are you dealing with it through normal course pricing, maybe you could talk about the next quarter or two and how that might evolve.
Speaker Change: Yes, as you look at the natural gas price in Europe, because it goes around $16.
Speaker Change: Yes, depending on Louisiana, Texas today, we're paying around two unchanged around $3 per M. N V to you I guess in order of magnitude of five X between U S and.
Speaker Change: In Europe, depending on where you have your facilities, if you're looking through a China that China is about on par if not cheaper.
Speaker Change: If they're burning coal or not which the vast majority of their energy comes from coal.
Speaker Change: As is even more competitive than the U S. When it comes to electricity and various raw material components.
Speaker Change: As we look at natural gas pricing today, it's around $14 50, so you've seen a dollar and a half drop in Europe, which has gotten very little notice. If you saw a dollar and a half drop in the U S. It would almost be cataclysmic somebody we'd be making any money.
Speaker Change: Making natural gas at a buck in change.
Speaker Change: So.
Speaker Change: Again, we need to be looking at these longer term trends and so forth. The simple fact of the matter is Europe does not have.
Speaker Change: Energy policy.
Speaker Change: That that has anything to do with the production of hydrocarbons the value of hydrocarbons and the importance of hydrocarbons.
Speaker Change: And I think this is this has been costing them for the last couple of years.
Speaker Change: There are industry thats going to continue to costs in their industry.
Speaker Change: So as we look at that.
Speaker Change: We've seen this coming for some time I would remind you that I know, it's going back in history at 15 to 20 years ago, we produce literally 10 times the volume.
Speaker Change: Huntsman dead.
Speaker Change: Volume of petrochemicals.
Speaker Change: That amount of time, it 15 20 years ago than we do today in Europe.
Speaker Change: That's astounding to think that we've dropped a lot of that or divisions, we sold off.
Speaker Change: Spun off and billions of pounds of that are also.
Speaker Change: Parts of it were just completely shut down.
Speaker Change: But the things that we've seen a 90% drop in our chemical production in Europe tells you something about.
Speaker Change: The failure of European Energy policy I'm, just glad today as we look at our portfolio today, we essentially think about advanced materials and performance products and much of our MDI.
Downstream business and Cpus and so forth. These are not heavy energy intensive businesses that are that are reliant on natural gas as we used to be a couple of years ago. So what are we doing the focus we're focusing on where we can make the most money on the least energy intensive capacities and so forth. So we saw.
Speaker Change: On past earnings calls, we're going to look at our energy intensive.
Foot print in Europe, and see if there are places outside of Europe Middle East U S. Other places, where we can perhaps produce this product.
Speaker Change: Right and that's a lot easier said than done obviously.
Speaker Change: We're going to continue to explore alternatives because of the longer term prospects without it.
Speaker Change: Sound plan in place.
Speaker Change: Just do not seem very good for energy intensive industries for Europe.
Speaker Change: Thank you our next questions come from the line of Hassan Ahmed with Alembic Global. Please proceed with your questions.
Hassan Ahmed: Good morning, Peter and Phil.
Hassan Ahmed: Question around around volumes.
You certainly sound.
Hassan Ahmed: A little more positive with regards to the.
Hassan Ahmed: The destocking being behind US you know you mentioned within polyurethane it seems.
Hassan Ahmed: Pricing NAV crossed out maybe beginning to pick up a little bit.
Speaker Change: In your prepared remarks, you talked about how in 2024 volumes were up 6% across your portfolio.
Speaker Change: But yet well below normal levels right. So I'm, just trying to get a sense of as and when the recovery happens factoring in restocking factoring in market growth.
Speaker Change: What that volumetric uptake may look like just to get us back to normal and then obviously there would be market growth.
Well I think that if you go back just looking at history.
Speaker Change: When you go back to 2021 that was obviously a time when when we were sold out.
Speaker Change: And most all of our production, particularly around polyurethane since 2021.
Speaker Change: We've.
Speaker Change: Started.
Speaker Change: A splitter in Geismar, Louisiana. So the next go round when were quote in a sold out position.
Speaker Change: I would hope that we'd have even more.
Speaker Change: You added downstream components at MDI than more of the bulk con.
Speaker Change: Commodity grades that we had.
Speaker Change: We're reliant on a couple of years ago and.
Speaker Change: I think that when we look at it as a more sold out position.
Speaker Change: 22018, 2021, I mean, these are kind of the times when when you see that and I think but for Covid, you probably would have seen.
Speaker Change: 18 through 21 sort of.
Speaker Change: Quasi super cycle.
Speaker Change:
Speaker Change: Would have taken place over a multiyear period.
Speaker Change: And we've obviously seen the falloff now our biggest issue I believe.
Speaker Change: And most of our every division we have is volume and polyurethane is can be volume and margins.
Peter Huntsman: Very helpful, Peter and as a follow up.
Peter Huntsman: In a world with with with Tyra, If you know certain product areas antidumping duties and the like.
Peter Huntsman: If you look at your portfolio I mean, it's obviously you know.
Peter Huntsman: More globally than your competitors from sort of positioning perspective in this sort of direct anti dumping duty environment would you consider the geographic positioning of your portfolio as it.
Peter Huntsman: Major advantage relative to your competitors.
Peter Huntsman: Yes, I really can't.
Speaker Change: Electing to speak about our competitors.
Speaker Change: Especially since Ive got 123456 lawyers no I've only got one lawyer at the table here.
Speaker Change: But I would I.
Speaker Change: I like the idea that over time.
Speaker Change: Following on what ICI started 20, some odd years ago, Matt as you produce where do you sell and you don't become reliant on.
Speaker Change: Global trading, which coming from ICI, probably sounds a bit strange but anyways.
Having those those global footprints and I look around the world right now easily 90 plus percent of what we produce.
Sold and within those respective regions and I think that for us.
Speaker Change: It's a very good fit.
Speaker Change: Thank you our next questions come from the line of Josh Spector with UBS. Please proceed with your questions.
Speaker Change: Hey, Good morning, first I just wanted to ask on the corporate cost for 2025, I mean, the costs have come down in the last few years. Despite the cost savings can you just go through why.
Speaker Change: So just can you repeat that.
Speaker Change: Yeah.
Speaker Change: Yes, so just why haven't your corporate costs come down from $165 million over the last two to three years, despite the cost savings.
Speaker Change: Yes, I mean, I think corporate costs ultimately have come down from a high of about $199 million a couple of years ago to 175. They were $160 today, you've got inflation running through that just just as we said we run at $40 million to $50 million of inflation. Overall. In addition to that we've had some like more lifetime losses and in addition to that some.
Speaker Change: FX impacts as well, but in general the underlying costs have been coming coming down.
Speaker Change: Okay fair enough and if I could follow up from an earlier question, just specifically around Europe and the downstream.
Speaker Change: Some houses that you're making some changes to I just wanted to clarify what's your plan for Europe, then would that business do you sell more polymeric monomeric MDI unless formulations and your services costs are lower and therefore, that's how you get back to profitability.
Speaker Change: Or is there a different strategy at play to how you approach to that region.
No I think.
Look you've got you've got demand is coming down we've got excess capacity in some of our system houses and you fill out the most efficient most flexible system houses.
Speaker Change: <unk> got you fill those out and then.
Speaker Change: <unk> got excess capacity you remove the excess capacity.
And unfortunately in a region that has continued to industrialize.
Speaker Change: That pie.
Speaker Change: It's just gotten smaller and smaller over the last couple of years. So yes, we're going to have to just.
Speaker Change: Unfortunately.
Speaker Change: Look at our asset base and align that with where our customers are where they are investing a lot of European auto companies. For example are investing more in new products and new applications and in the U S and in China.
Speaker Change: So some of that that.
Speaker Change: Capacity and some of that work was formally done in Europe is going to be done elsewhere.
Got it.
Speaker Change: We've got to follow the customers and what are the applications are taking place.
Speaker Change: But as we have excess capacity, we also need to remove it.
Speaker Change: Thank you. Our next question is come from the line of Alexia <unk> with Keybanc capital markets. Please proceed with your questions.
Speaker Change: Good morning, everyone. Peter Thanks for your commentary on MDI pricing in the U S and I.
Speaker Change: I realize that there isn't just one price out there you just described that nevertheless want us a lot.
Speaker Change: <unk> 15 cents per pound increase here.
Speaker Change: So could you maybe approximately size the order of magnitude of what you are trying to achieve or what do you see competitors trying to shift relative to maybe that 15.
Speaker Change: Or what other grades are we talking about five cents per pound 10, or 15 that you're hoping to achieve by let's say middle of the year.
Speaker Change: Our price increase that went out.
Speaker Change: Before one was by the way.
Speaker Change: It was at least 10 cents per pound.
Speaker Change: And again that some people were going to try to ramp up as quickly as possible others, youre going to have pricing protection and others.
Yes, certain other applications. They may see more of they may see less of that but.
Speaker Change: But ours is less.
Or at least.
Speaker Change: 10 cents per pound.
Speaker Change: Thanks, a lot very helpful.
Speaker Change: As a follow up I wanted to ask you about marrow Laurie.
Speaker Change: So you're describing qualification initiatives. So can you maybe tell us what's been achieved.
Mirror along in 'twenty, four and whether the your outlook on timelines for commercial scale up of this product has a has changed.
Speaker Change: Yes in the past year, we have expanded to a 30 ton reactor.
Speaker Change: This gives us when this reactor.
Speaker Change: Well it will give us two things it'll give us product that we can start producing at <unk>.
Speaker Change: Commercial scale and commercial economics, and they will also give us product from which we can we can start qualifications and a number of different applications.
Speaker Change: So for us.
Speaker Change: We believe that during 2025, we will see production out of that 30 ton.
Speaker Change: Reactor that will be going to market that will be sold into the market and we'll be going to a phase that is larger.
Speaker Change: Then that reaction and.
Speaker Change: That will be started is that that will be a 5000.
Speaker Change: Kiloton.
Speaker Change: <unk>.
Speaker Change: Reactors that will be there'll be started up probably sometime next year.
Speaker Change: At that point.
Speaker Change:
Speaker Change: I would say a 5000 tonne react and not 5000 kiloton that'd be great. If we could get at a five five K reactor.
Speaker Change: Yes.
Speaker Change: That I believe is probably just from the physics point of view as large as you can go and then you start multiplying that size of reactor.
Speaker Change: So that will give us sustained materials. The reactor we have today. It will just give us better economics than what we have today. So.
Speaker Change: Bit more developmental work to do on the reactor side, but we do have product that we're taking into the market and we are working with a number of applications first of those that we hope to get it will probably be an EV battery applications.
Speaker Change: We hope to be reporting on later this year.
Speaker Change: Thank you. Our next question is come from the line of Michael <unk> with Wells Fargo. Please proceed with your questions.
Michael: Hey, good morning.
Michael: I understand the difficulty in and looking beyond the first quarter, but Peter.
Michael: Is there potential that TQ EBITDA sequentially should be better than <unk> or maybe the way to ask it is what what what do you think needs to happen to see a sequential improvement are you seeing any hints from customers that <unk>.
Demand seasonally should uplift and so just kind of your general thoughts of how EBITDA could get better as the year unfolds.
Michael: Yes, I know that sounds like a really simplistic answer it seasonally yes, we will see an improvement in earnings just because we're now starting to get into April may June construction time period, whereas first quarter, they're not there's not as much construction going on and I do believe that we will see some traction in pricing on.
Michael: MTI.
Michael: <unk>.
Michael: During the second quarter as well I'm very hopeful on that I want to be absolutely clear, we won't know until customers pay the invoice.
Michael: We can make all the announcements we want but until we start getting more money from our customers.
Were not successful.
Speaker Change: I think between seasonality and improvement in pricing in <unk>.
Michael: Advanced materials again.
Speaker Change: The highly cyclical or seasonal.
Michael: <unk> and performance products.
Michael: That will that will improve as we see.
Michael: C.
Michael: The acceptance of our amines going into new market applications and as you see.
Michael: <unk> Malay derivatives too.
Michael: <unk> improved during the construction seasonality as well so yes, I would certainly hope that Q2 would be better than two months.
Michael: Yes, Q1 month.
Speaker Change: Got it and then just a quick follow up I think you mentioned that China MDI prices over a three year highs.
I don't suspect that China, MDI margins had a three year high so if they're not in there maybe you can give us.
Where they are and what needs to happen for that to the margins to improve.
Speaker Change: Yes, I don't want to get into.
Speaker Change: Granularity on an EBITDA.
Speaker Change: Regional basis, but I would say that right now I would be very happy if.
Speaker Change: If all of the regions, where at the same margin as China.
Speaker Change: And.
Speaker Change: Yeah look we what we need in China more than anything else is demand it would be great to see some sort of a stimulus that would we saw the first thing I believe just my personal opinion, we saw bursting of a housing bubble that probably started back in the eighties.
Speaker Change: I think it was probably one of the longest most sustained housing bubbles.
Speaker Change: Was formed as hundreds of millions of people went from.
Speaker Change: Rural into.
Speaker Change: Urban.
Living in China benefited greatly during that time period.
Speaker Change: That slowed down and to the extent that recovers I guess get some traction I think that would be a huge plus.
Speaker Change: Thank you. Our next question is come from the line of Matthew Blair with T. P. H. Please proceed with your questions.
Matthew Blair: Great. Thank you and good morning, everyone.
Speaker Change: Slide 13 the dividend.
Matthew Blair: Equity affiliate.
Matthew Blair: For 2025 shows a $75 million headwind year over year. It seems like a pretty large number in the context of your contribution from the <unk>.
Matthew Blair: The China IPO MTBE plant I think it was about $39 million of equity income in 2024, So could you help us understand.
Matthew Blair: The moving parts on the $75 million.
Speaker Change: Yes, Matthew good question.
Matthew Blair: So two items, which I.
Matthew Blair: I see that headwind one you've talked about which is all around the MTBE margins and how those fit.
Matthew Blair: <unk> fairly significantly from the second half of 'twenty four.
Matthew Blair: Remained.
Matthew Blair: Very low here in the first part of 'twenty five so that's one part the other part you may recall that we had a.
Matthew Blair: Proximately 40 million dollar dividend as a result of the restructuring of our Chinese MDI joint venture. The so called select joint venture and that was a one off which I think we highlighted at the time that goes away and therefore, it's a headwind in 2025.
Speaker Change: Great. Thank you and then could you also clarify on the European notes that will be repaid in the first quarter is that going to be a straight pay off with cash or do you expect to refinance those notes.
Speaker Change: We don't we don't expect to refinance those we.
Speaker Change: So account a 24.
Speaker Change: Notes.
Speaker Change: At quarter end of quarter three quarter four of last year for $350 million, which we then swapped to about a 4.25% rates.
Speaker Change: So that'll.
Speaker Change: That'll be a straight to straight path, which will be in the first quarter.
Speaker Change: Thank you our next questions come from the line of Laurence Alexander with Jefferies. Please proceed with your question.
Laurence Alexander: Good morning, two questions one is.
Speaker Change: The U S.
Laurence Alexander: Instruction market recovers and U S MDI becomes relatively tight.
Speaker Change: There isn't a broader.
Speaker Change: Inflation cycle to destroy demand or some other demand shock what would you see as the natural breakpoints for the regional spreads and margins.
Speaker Change: Is there any safety valve any obvious product substitution that we should be thinking about in terms of what was it.
Speaker Change: Regulate the.
Speaker Change: Our U S margin sit relative to the rest of the world.
Speaker Change: And then secondly, if things do tighten back up.
Speaker Change: I'm just extrapolating from your green shoots in.
Speaker Change: Maybe I'm being too optimistic.
Speaker Change: And you get a return to a decent run rate on free cash flow what are your priorities in terms of.
Capital returns deleveraging.
Speaker Change: Folio shifts to reduce cyclicality going forward.
Speaker Change: Yes.
Speaker Change: Laurence good that's good to hear from you.
Speaker Change: Sure.
Laurence Alexander: I would love to test year hypotheses and see how high we could get prices before we start to see things.
Laurence Alexander: Okay and also just.
Laurence Alexander: There is.
Laurence Alexander: Three things keeping my first of all let's let's think about what the application is going to be some applications have pretty low content of MDI and so you can get prices can probably close to double in MDI and it's not going to hurt the downstream application all that much.
Laurence Alexander: But when you talk about construction per se.
Laurence Alexander: Two you're looking at products that let's just say.
Laurence Alexander: Spray for home installation, you've got competing products and fiberglass.
Laurence Alexander: Mineral wall and so forth.
Laurence Alexander: That youre competing against.
Laurence Alexander: And so the higher you pushed the price up for spray foam the more competition youre going to have coming in on.
Laurence Alexander: Your mineral fiber and so forth as you look at OSB.
Laurence Alexander: I would imagine in places where it's still.
Laurence Alexander: Youre still able to use it you'd see formaldehyde products and so forth.
Laurence Alexander: So eventually you start hitting product substitution.
Laurence Alexander: Some of Thats going to be at a lower price point that not a lot of that depends on what your overall content.
Laurence Alexander: Of MDI is going to be the third area that I would just factor in us.
Laurence Alexander: Margins get out of Kilter, if you will comparison to the other regions.
Laurence Alexander: You will see amazingly you do see people that actually produce MDI in Europe and ship it to the U S. Even in today's lousy economics, I'm not sure how that works, but according to trade data you still have companies that are doing that so.
Laurence Alexander: As you as your margins go up disproportionate to the other two regions you arent going to attract more imports some of thats going to be impacted by tariffs others have it much less so.
Laurence Alexander: So.
Laurence Alexander: Factoring those three things where do you have what is your content per <unk>.
Laurence Alexander: End use application what is your.
Laurence Alexander: Youre competitive materials and thirdly.
Laurence Alexander: What point do you start attracting.
Laurence Alexander: Imports coming in and flooding the market if you will.
Laurence Alexander: Laurence on capital allocation.
Laurence Alexander: As you think about our portfolio of it hits back to.
Laurence Alexander: Towards mid cycle.
Laurence Alexander: Over time debt levels, I think I've said.
We're comfortable with the debt levels of long term debt was about $1 billion of households, I think that.
Laurence Alexander: For this portfolio Capex running today, 180, 890, probably a little light if you move towards a mid <unk>.
Laurence Alexander: Level of earnings so more like think about <unk> 40 on a mid cycle level.
Laurence Alexander: Dividends.
Laurence Alexander: Want to remain competitive from a dividend standpoint, it's a 6% yield today, that's obviously off a trough economics right now.
Laurence Alexander: And then we'll get into once we are delivering excess free cash flow well in excess of our dividend and then we'll get into the into the debate of share repurchase versus M&A on our advanced materials business, which we continue to want to build over time. So hopefully that's the way to think about.
Laurence Alexander: Capital allocation as we move back towards mid cycle earnings over time.
Speaker Change: Operator, we've.
Speaker Change: Lauren Thank you very much and operator, we've typically like to end at the top of the hour why don't we take one more question and then we'll wrap up the call afterwards.
Speaker Change: You got it our final questions are coming from the line of Everyones Richmond Hoffman with RBC capital markets. Please proceed with your questions.
Speaker Change: Great. Thanks for taking my questions I guess I just wanted to ask about capital allocation. So obviously, you've undergone review here in Europe, I think you've mentioned in the past.
Speaker Change: Are there other kind of clean up that you'd like to pursue and then I guess, maybe you can discuss our leverage and the dividend are you still committed their.
Speaker Change: Yeah. Thanks.
Speaker Change: Yes, I would say.
Speaker Change: Say on the dividend, yes, we are very much committed and as we look out to 2025, we believe that that.
Speaker Change: Our objective as a management team is to make sure that we cover that dividend in <unk>.
Speaker Change: And then some.
Speaker Change: So yes.
Speaker Change: I would say just speaking on behalf of the board met just a couple of days ago.
Speaker Change: Our quarterly meeting that that dividend is something that.
Speaker Change: As near Sacred to us.
Capital allocation to other areas.
Speaker Change: I think as we've said on the call we're focused on a number of.
Speaker Change: Restructuring some of our asset footprint, we've talked about was downstream areas.
Speaker Change: We're getting through a strategic review on the Lake and hydride.
Speaker Change: We listed a lot of actions that we've taken over the last three years and we will continue to look at our office portfolio.
Speaker Change: Regular basis in terms of overall leverage we closed at three six times I do expect a bit of a kick up in the first quarter, just because of the natural free cash outflow in the first quarter, but as you look out with this portfolio over a number of years you see that coming down as you return to more mid cycle level of earnings over time.
Speaker Change: Thanks.
Speaker Change: Operator, we'd like to thank everybody for joining us this morning.
Speaker Change: We'll look forward to meeting hopefully all of you during the next quarter here.
Speaker Change: Thank you that does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.
Speaker Change: Okay.
Speaker Change: [music].