Earnings Call: Q3 2019

Oct 25, 2019

Greetings, and welcome to the Huntsman Corporation Third Quarter 2019 Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, I have your Markkuza, Vice President, Investor Relations. Please go ahead, sir. Great. Thank you, Kevin, and good morning, everyone. Welcome to Huntsman's third quarter 2019 earnings call. Joining us on the call today are Peter President's Chairman, President and CEO and Sean Douglas, Executive Vice President and CFO. This morning, before the market opened, we released our earnings for the third quarter 2019 via press release and post it to our website, huntsman.com. We also posted a set of slides on our website, which we will use on this call this morning, while presenting our results. During this call, we may make statements about our projections or expectations for the future. All such statements are forward looking statements and While they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with 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 during the quarter. We also refer to non GAAP financial measures such adjusted EBITDA, adjusted net income and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website at huntsman.com. I would remind you that on August 7, 2019, we Huntzman announced the sale of its chemical intermediates and surfactants businesses to Indorama Ventures in accordance with generally accepted accounting principles These assets are now reported as held for sale on the balance sheet and as discontinued operations on our income statement. Therefore, the results we have highlighted in our earnings release and we'll discuss on the call are for continuing operations of our business. I'll now turn the call over to Peter Huntsman, our Chairman, President and CEO. Ivan, thank you very much. Good morning, everyone. Thank you for joining us. Let's turn to slides number 34. Adjusted EBITDA for polyurethanes division in the 2nd quarter was $146,000,000 versus $218,000,000 of a year ago. Zyvan mentioned, our North American propylene Oxide and MTBE businesses are now reported as discontinued operations. Therefore, our continuing operations for our polyurethanes divisions are now nearly entirely comprised of MDI based formulated systems, elastomers and MDI components. As a reminder, and as we have called out in the in the third quarter of 2018, we were still experiencing exceptionally high margins in the component end of our MDI portfolio. These spike margins, including above normal operating rates, conditions accounted for approximately $45,000,000 of the year over year variant. MDI volumes in the quarter were up 3% as the business continued to benefit from the expansion of our Chinese facility that began to come online in third quarter of 2018. Our downstream strategy continues to perform well. Our margins remain stable and the larger differentiated end of our polyurethanes portfolio. This stability is a result of our continuous drive downstream, ongoing material substitution, product innovations, benefits from bolt on acquisitions, global scale up opportunities and increasing regional diversification. In the third quarter, our total differentiated systems volumes were about flat compared to last year and our global component MDI grew 7% year over year. Due to the new capacity a continuation of what headwinds did intensify somewhat in September. We believe that the destocking we reported impacting the first half of the year in polyurethanes is finished, most specifically in China. However, customers are still cautious and inventories continue to be managed aggressively low in about every region which we compete. Consistent with what we have said in our conference call in July, visibility still remains challenging. Looking at polyurethanes regionally for the second quarter, our Americas volumes were down from the prior year. We experienced a short term outage near the end of the quarter at our Geismar facility, impacting volumes of debt and EBITDA by about $5,000,000. Our spray foam insulation business, Demilec, that we acquired last year continues to be a bright spot for us and is growing at we're on track to achieve our expected synergies. Just to illustrate the global opportunities for our Demilec business, the system house that we opened this past September in Dubai is equipped to support Demilec growth in that region. Our growth in spray foam in the quarter was offset by weaker volumes in other high volume markets such as OSB and furniture. We are focused on growing our downstream business further in the Americas, and we're progressing with a new splitter at our Geismar facility. This should be operational in 2021 and will cost approximately $175,000,000 to build. Which is above our preliminary estimate that we shared with you this past February. The increased costs are primarily due to higher material costs such as steel due to tariffs, as well as very tight labor markets in the Gulf Coast. Despite these higher costs, the IRR on this project remains very attractive, well north of our 20% hurdle rate. Turning to the Asia region of Polyurethanes, our differentiated and component volumes were up even when excluding the benefits of our recent expansion. Volumes are being helped by insulation growth in large scale infrastructure projects and applications. The adhesives, coatings and elastomers in footwear markets in Asia are also contributing as we gradually shift our China portfolio and the newly added capacity to be more are at very low levels in this region. While we've experienced real growth within this region, demand in China remains well below average and erratic. We believe this will remain unchanged and visibility. In Europe, our downstream margins are stable despite lower underlying demand. Our volumes in the region were marginally up, but that was primarily a result of favorable comparisons due to outages that impacted our results in the same period of a year ago. The overall macroeconomic environment remains increasingly soft. We do not expect it to improve in the near term. The margins in our differentiated business remain stable despite the pressure on volumes and weaker industry conditions. Our long term strategy of growing our downstream business through strategic investments like our splitter, our new system houses, will continue to be supplemented with bolt on acquisitions having strong synergies and compelling financial metrics. We believe that substitution will continue long into the future. However, the short term, the demand headwinds are unlikely to change On top of that, the 4th quarter is typically softer than the second and third quarters. Putting it all together, we would expect our 4th quarter results that look slightly better than our first quarter. Let's turn to slide number 5. Our Advanced Materials business reported adjusted EBITDA of $51,000,000, a decrease compared to last year's EBITDA of $56,000,000, The decline in adjusted EBITDA was largely driven like to remind you that roughly 40% of this segment's revenues are in Europe. The automotive construction and real markets in this region continued to weaken through the quarter. The underlying European macroeconomic challenges largely explain the underperformance of this segment relative to our expectations. Due to soft end markets and lack of visibility due to international trade concerns. The Americas region showed improvement over last year, primarily due aerospace offsetting weaker industrial markets. Despite these significant macroeconomic headwinds, the Advanced Materials business has demonstrated real margin resiliency due to the high value specialty and formulated nature of the portfolio. It is important to note that this business added around $10,000,000 of additional fixed costs to support future growth. We believe this will be a wise investment that these products will soon be coming to market. Advanced Materials remains a core platform for both organic and inorganic growth, and we will continue to invest in this business in the long term. I want to again emphasize Advanced Materials remains one of our most consistent businesses, while we do not expect the macro environment to change in the near term, we expect full year adjusted EBITDA to be within 10% of last year's record The Performance Products segment reported adjusted EBITDA of $38,000,000 with our Chemical Intermediates And Surfactant businesses now being reported in discontinued operations. This segment is now largely comprised of our A means and Malek and High Dri businesses. Total volumes were down 12% versus the prior year. This business is seeing similar pressures that our other divisions polyurethane catalysts, especially in the spray foam automotive and furniture end markets since customers look for low VOC solutions. Special TA means going into different curing agents and specialty coatings are also doing well. However, these positive results are being masked by market weaknesses and competitive pressures in the ethylene amines market. Which is consistent with what we highlighted venture in Germany, our Malay business is now roughly 60% North America and 40% European. Soft market conditions in the North American unsaturated polyester resin market and weakness across most of the European markets put some business remain good and we expect results to remain relatively stable. For the fourth quarter, we do not expect much change in the current markets service by the Performance Products division. Ended EBITDA of $16,000,000 for the 3rd quarter, noticeably down versus last year's 3rd quarter. Results were muted due to an unusual slow September, which is the month where we typically start seeing a seasonal pickup in demand for this business. Customers remain cautious due to uncertainty around global trade and shifting manufacturing locations. Total volumes were down With such a deep supply chain, this business has seen more volume pressure than our other businesses. We believe there is little if any destocking left in the chain. Margins were also pressured due to lower volumes and the related competitive pressures versus the prior year. Despite these challenges, our new eco friendly products and market leading technologies continue to gain traction with our global customer base. However, these wins have been partially offset by volumes across by volume pressure across the portfolio. We believe that We do not believe that the long term fundamentals for the business or industry has changed. We remain positive looking out over the next several years. In the near term, we do not expect the industry headwinds to abate until visibility and customer confidence in key markets begin to improve. As a result, we expect Before sharing some concluding thoughts, I'd like to turn a few minutes over to Sean Douglas, our Chief Financial Officer. Thank you, Peter. As Ivan stated at the beginning of the call, with the pending sale of our chemicals and intermediates and surfactants businesses to interim adventures. We now report these businesses as discontinued operations in the income statement and as held for sale on our balance sheet. This is our first quarter in doing so, resulting in an expected transition for Wall Street to align their models and estimates with our earnings on a continuing operations basis. Now turning to slide 8. 3rd quarter adjusted EBITDA declined year over year by $93,000,000. The decline in EBITDA can be largely explained in 2 primary because of the weak global economic backdrop, we saw volume pressure on our downstream businesses, but with minimal impact on margin. Volumes were down in our Advanced Materials business by 11% and our Performance Products business by 11% and within our textile effects business by 7%. We saw downstream volumes within polyurethanes, largely flat. The second primary part for the decline in EBITDA is due to margins, which is largely a portion to the upstream component end of our polyurethanes division. Margins within our Downstream Polyurethanes division remained stable. Margins also remained resilient within our Advanced Materials segment and largely so within our Performance product segment. Margins within our Textile Effects division were mixed with more stability and the specialty end of this portfolio. Turning to slide 9. In spite of lower EBITDA, softening global economic backdrop receivables contracted, thereby freeing up cash. Additionally, we continue to proactively manage our inventory levels. Our free cash flow conversion continues to be consistently strong with an adjusted LTM conversion rate of approximately 40%. Businesses that are pending divestment in early 2020. These discontinued operations have previously to expect our free cash flow conversion to experience less volatility and be above 35%. This excludes the capital required for a previously announced construction of a new MDI splitter at Geismar, Louisiana, which is expected to be in operation in 2021. The total $18,000,000 is estimated to be spent in 2019, $75,000,000 in 2020 and the remainder in 2021. While this will impact our reported free cash flow conversion rate, we have been proactive have taken steps to generate additional For example, during the third quarter, we disposed of a vacated properly previously used by textile effects in Basel Switzerland, for $49,000,000. This is not reported in free cash flow. Additionally, last year, ahead of the announcement of our splitter, We found ways to better manage our liquidity in China resulting in a one time free cash flow improvement of approximately $70,000,000 reported within the 4th quarter of 2018. As we look into capital release as much of this release has already occurred within the third quarter. Therefore, our 4th quarter free cash flow will be lower than seasonally expected. In combining quarter was $310,000,000. We utilized this robust source of free cash flow during the quarter to reduce our short term floating rate borrowings by approximately $225,000,000 and to repurchase approximately 4,100,000 shares of our stock for $81,000,000. Since the first quarter of 2018, we have repurchased $472,000,000 of stock or approximately 20,000,000 shares representing approximately 8 share repurchases. We intend to continue repurchasing shares During 2019, we expect to spend approximately $270,000,000 of net capital expenditures, which as previously stated includes approximately $15,000,000 related to our North American polyurethane splitter. As a footnote, we expect to spend approximately $70,000,000 Our adjusted effective tax rate between 22% 24%. We ended the quarter with $1,700,000,000 of combined cash and available borrowing capacity On September 30, 2019, we acquired the 50% non controlling interest in our Sasol hunt Moma Lake And Hydro joint venture located in Germany, we paid SASL $100,000,000, which included acquired cash net of any debt and is available loan pricing in Europe, facility to fund this purchase. Pricing is Eurobore plus seventy five basis points with the Eurobore floor of 0. Our net debt leverage stated on a total company basis was 1.6 times as of September 30, 2019. Pro form a for the divestiture of the chemicals, intermediates and surfactants businesses, our pro form a net leverage would be approximately 1 half of a turn. In summary, we remain committed to generating consistent strong free cash flow maintaining a strong investment grade balance sheet and allocating our capital earnings call, at the end of July, there are many different variables out of our control that could either improve or worsen, which would impact our second half results. Unfortunately, not much has improved on a global stage as many of you see in the macro data, such as slowing GDP, weakening PMIs in a rather sudden falloff in the European economic performance. Meeting with investors and analysts, we often get asked how our current portfolio businesses will perform in a recessionary type environment. I believe you recession in many of our core regions and markets. However, while we are seeing lower volumes, it is important to note that our downstream margins are holding well. We're generating strong free cash flow as our businesses are taking the appropriate steps to manage working capital as well as pulling back on discretionary While we are not expecting the economic environment to change for the better in any material way in the near term, we will continue to focus on what we can control. Ending on a number of different factors. As we look into the fourth quarter, we expect adjusted EBITDA for our continuing operations to be about 15% below the 3rd quarter. This gives consideration to the lingering economic challenges and the typical seasonality of our businesses. Now let's turn to Slide 1011. In conclusion, I'd like to spell out our priorities in the coming months. Number 1, we'll continue to stay focused on operating safe and reliable operations, while maximizing the value of what we sell into in continued product substitution and innovation. Number 2, we're on a path to close on the sale of our chemical intermediate in Surfactant businesses previously outlined. This process will commit Huntsman to provide ongoing transitional services will partially offset simultaneously restructuring our costs and aligning our business to better serve our growing downstream demands. In short, we will be keeping some costs into 2020 while at the same time restructuring our business services and cost structure. Number 3, we'll continue to keep a strong balance sheet as we evaluate growth in M And A Opportunities share buybacks and pay a competitive dividend. At times of economic uncertainty, we have no intention of stressing our balance sheet. And number 4, we will carefully look for the best deployment of our capital after we close on the sale of our intermediates in Surfactant businesses. We will continue to look I believe we are seeing multiples for As I look at the strength of our balance sheet, cash generation, product pipeline, and opportunity to further align our business to move more aggressively further downstream, I have never seen this company in a better position to create shareholder value than I do at the present. With that, operator, we'll session. Our first question today is coming from Kevin McCarthy from Vertical Research Partners. Your line is now live. Good morning. Peter, as you anticipate the influx of $1,600,000,000 in cash proceeds from the Indorama deal, Can you, elaborate on how you're thinking about organic growth investments versus M and A, for example, with regard to your splitter project, notwithstanding the higher costs, it sounds like you're looking at a return above 20% there. Do you see other projects, or opportunities like that that could claim a substantial portion of the capital. And, maybe you could just elaborate in general on your latest thoughts there. Well, thank you very much, Kevin. I look at the splitter that we're building in Geismar, Louisiana to be something almost akin to an We have a very similar splitter in Europe. We have one in Asia with the completion of this facility in the Americas. We're going to be very well positioned by producing crude MDI, splitting capacity and downstream. I don't see a lot of, large CapEx projects. So if you were to give me $150,000,000 right now and say go spend it internally. I think I'd be rather hard pressed at the present time. I don't see a lot of large scale projects like that. And frankly, I'm not a big believer in that it seems that, as you build virtually anything in the last decade in the U. S. Gulf Coast costs just continuously are going up. And I've never been a big proponent that this industry needs more capacity of just about any product. I think that we need greater, diversity of technology and the ability to, to, perhaps specialize the products we're producing But frankly, I don't see this company going headlong into spending a lot of CapEx around building new capacities. Around the world. And as I look at that, that threshold because of the risks of higher costs and uncertainty about making commitments today as to where markets will be 2, 3, 4 years down the road when you complete such projects. I think that they warrant a much higher IRR in general than M and A does. Where you know what you're getting upon closing. And you have a good outline of synergies, technologies, globalization, and you can have a plan of action on day 1. That's rather difficult to do when you're planning a new MDI plant that won't be coming into the market for upwards of 4, 5, 6 years. So, I think that we're going to be certainly leaning more towards, towards M and A opportunities. And again, I emphasize that on a cautionary note, as I did in my script, And I would also say that we want to make sure that whilst particularly while we're in what I would consider to be rather challenging economic conditions. We need to make sure we retain a strong balance sheet. We've got plenty of capital to continue to pay a competitive dividend. And we are very committed to a share buyback program when the share price is at appropriate level. Thank you for that. It's helpful. I guess on a related note for Sean, I wanted to clarifying my own mind some of the comments that you made about the capital budget. I think you mentioned 270,000,000 is that an indicative pro form a level post the separation of the Indorama assets? And then I think you mentioned $70,000,000 for discontinued operations. What is that and is it in addition to the $270,000,000? Thank you. Yes, thanks. Thanks, Kevin. Yeah, you're right. Think about going forward that this remaining business will have probably between $2.50 to $2.75 of what I'd call ongoing CapEx and think about mandatory spend in that $250,000,000 to $275,000,000 of around $150,000,000 to 170 The $270 I stated includes $15,000,000 for this new splitter. It does not include any of the spending that's in a discontinued operations. That $70,000,000 for the discontinued ops is, in addition to that. And we're now just reporting on a remaining basis of continuing up. So the $70 is apart and separate from the $270,000,000, and it is largely mandatory expenditure. Thank you. Thank you. Our next question is coming from Lawrence Alexander from Jefferies. Your line is now live. Good morning. Could you discuss so a little bit in both for both Advanced Materials and in polyurethanes, how you're seeing the, competitive dynamic shift, in response to a weak environment. That is, are you seeing capacity curtailments? Are you seeing changes in pricing behavior, extended outages? Any other kind of indications of sort of how the market is reacting in this environment? I think, Lawrence, it really is a little bit of a mixed view. The further upstream that you are or the more commoditized product and the application. I think the more competitive, pricing and margin pressure that you're seeing further on down the chain, where you have a product that has been specked into a customer where you have a multi year commitment and where you're selling in effect or performance rather than a raw commodity raw material that maybe has a little bit of work done to it. I think that we're seeing far less of that. And so as I look at something like our advanced materials, in Aerospace as I look at our downstream formulation applications in MDI and polyurethanes and so forth. Margins are for the majority of the business, margins are holding up very well. It's volume that is hurting the bottom line. And I suspect that volume will obviously be coming back as the economy starts to stabilize or even if the economy doesn't stabilize when you see a lot of the inventory destocking that is out there taking place. So, Again, I would say, and it's always a, I probably I was getting trouble for saying something this broad, but I'd say that I'd like to think that 2 thirds of our business is is more volume sensitive, meaning that I think margins are pretty stable by and large and we're going to be more affected by volume and maybe a third of our business, you're seeing more competitive factors that might might be impacting, to some degree or another, margins. And so it is, you know, and again, product by product region by region, division by division. Those things will vary, but I think that obviously we'd like to get more and more of our product into that 2 thirds category. And are you seeing any sort of significant curtailments of customer R and D cycles, innovation cycles, new product development in response to the soft environment or has that been consistent? I have not. As a matter of fact, I might be seeing, I, and I don't want to say that this is going to continue, but for the time being, I think that there's you take an economy like Europe where you're seeing virtually no growth in GDP, perhaps even a bit of shrinkage right now in economies like Germany and so forth, yet product substitution, things around sustainability, things that have an environmental improvement and push I think that there's actually more innovation in certain applications. I look in the footwear industry where a lot of the producers today are looking to have a single grade of material that goes into the soul of a running shoe versus four or five from elastomers and colors and so forth that go into the silver running shoe. You look at those sort of, it might sound rather drab, but those are areas where we're seeing where there's increased reward, increased opportunity, And so I think right now, I have not seen a decrease in the reward for innovation and the opportunity to replace product substitution. Matt, I would imagine 2020, I've not seen the budget yet we've not completed for 2020, but I would imagine that the majority of our growth in 2020 will be through product substitution. Thank you. Thank you. Our next question is coming from Bob Koort from Goldman Sachs. Your line is now live. Thanks very much. Peter, you commented, I think that you're seeing component MDI margins pressured. I guess, your major competitor from Midland yesterday showed some charts at least in Asia Pacific that seem to suggest maybe things have bottomed out there. So I'm curious where do you see the incremental pain coming from in the commodity MDI? Well, given the number of competitors that we have in Midland, I won't even try to get to that might be, but I think that in earlier conversations, I think last quarter, we said that we thought that China was most aggressive in and bottoming out its inventory. And I think that as we look at now in my earlier comments, Bob, I think that I said that we felt that China, not just in MDI, but perhaps in some of our other products, but more particularly in MDI, it had the inventories that were very low. And, and I think that we're seeing If anything, I think we saw a little bit of growth that took place in the third quarter in MDI after you take out the effect of our new capacity there. And I think that's probably the first quarter in the last three quarters or so where we've seen a return to growth in China. So I'm not here to say that China is off to the races and we're going to get great guns there. But I do think that it has more to do with the idea that that we're done, with destocking on, on a large basis in China. I'd also just know, Bob, that as we look at a lot of the announced capacities that are coming into the MDI market, that seemingly a lot of those likewise have been, either delayed or or has been outright canceled. And so I think that between, lowering of the or the kind of the destocking coming to an end here and perhaps some of the capacities are the cash cancelled or pushed out I'm probably quite bullish on MDI to look at over the next 12 to 18 months. Again, depending on the macro economic environment as well. I guess, maybe combining that with, you made comments that multiples are starting to come down, but you own multiple guess, on a pro form a basis after the Indorama deal, looks like it's, I don't know, maybe 6 times 40 EBITDA. That seems like a pretty large discount given that enthusiasm you expressed and maybe high grading of the portfolio. So how do you square that with pursuing acquisitions and the risks that come with that versus buying your own arguably discounted equity? Well, I think that we need to continue to balance both of these very well. I look at what I've what I see is our multiple, I think we've seen an expansion over the course since we've announced this deal. And I think that the market will, I think the market will reward you a little bit when you announce it. I think they'll reward you a bit more when you actually get it done. And I think that they'll reward you quite a bit more when you redeploy the capital smartly. And I think that's got to be done by a combination of both share buybacks as we have seen in the last quarter too. I think we've, yes, last quarter, we bought in $80,000,000 worth shares all under $20 a share. And at the same time, we also bought in our 50% partnership of our Malican hydride business and simultaneous this last quarter. We sold off $2,000,000,000 worth of $2,100,000,000 worth of our business. So I think we've got to, Bob, do all three of those things very smartly. And I think that over time, the market will reward June. The multiple will continue to improve. Great. Thank you Peter. Thank you. Thank you. Our next question today is coming from Jim Sheehan from SunTrust Robinson Humphrey. Could you talk about your thoughts on monetization or the remaining stake in Venator Materials and how, if at all, that any loss associated with that sale could be used to shield taxes on your transaction within the RAMA? Okay. I'll let Sean talk about taxes because that's certainly a saver subject to talk about. And I think that as we look at Venator, share values, obviously, it's at a very low value. And I obviously, I don't want to comment on what we may or may not be doing on a future basis, but we do need to be able to look at the potential monetization there and factored in, with, with tax implications with it. And, where that capital, can be dust deployed. So, again, rather evasive answer, but we'll continue to evaluate that very carefully. Thanks, Peter. Jim, as we think about this, think about it this way, that the sale to Indorama will create on a portion of that sale a capital gain to Huntsman. And as you look at the Venator stock, there is a high basis left in that stock near about the IPO price. And so what that will allow us to do is upon the divestiture of Venator down the road. It will allow us to the degree that we are under that IPO price. It will allow us to have a capital loss And now there's a 3 year kind of a timeframe that's allowed with the IRS to do that, which allows you to roll it back. And so think about potential value opportunity on the tax side in terms of savings, which helps the leakage on the endorama sale to be up to definitor. Hopefully that helps. Very, very helpful. Thank you very much. And then, on the Demilec business, you're making progress, synergy capture seems to be on track. Can you just talk about where EBITDA margins were in that business when you acquired it And if you've experienced any margin expansion associated with this synergy capture and the double digit growth in the business, Yes, I think that we see, at the time of the acquisition, about a 16% at the time of the acquisition and moving to about 20% now. Again, there's going to be a little bit of noise on that when you look at some of the pricing and values and so forth. But I think, more importantly, we'll look at the Demilec purchase, which is just over a year ago, And, it's today around, you know, we purchased it. It was about 11.5 times EBITDA. And I think that that EBITDA, if I were to annualize this present run rate, is an acquisition of around 7 times, EBITDA. And we look at that on an integrated basis fully integrated MDI basis of somewhere in the low 20% and a very stable 20% and growing at that. So, again, I think that it's something that we look at overall growth in that business is low double digit growth. And we still have just a small, a very small fraction of the overall market in the spray foam. So, a lot of room to expand. I'd love to see more tonnage frankly from our MDI business moving into spray foam and out of the general market, if you will. And, I think that's a strategy we're going to continue to push. Thank you. Thank you. Our next question today is coming from William Blair from Tudor, Pickering, Holt. Hey, guys. This is Matthew Blair. How's it going? Okay. Good. Good. In Ad Matt, Peter, you mentioned, you had about $10,000,000 of fixed costs rolling through that would support future growth, and that products would soon be coming to market. Could you just provide more details on exactly what kind of products those are and, what the EBITDA uplift might be? Yes, I think the EBITDA uplift that I'm looking at, I would think that, that, I think that that business operating in around percent, low 20 percent EBITDA business is something that, I'd like to see us maintain that I'd like to see more growth in that business rather than margin expansion of that business. I think that, in order to have that growth, we need to be investing in a product pipeline, when you're looking at new applications going into the aerospace business, that's not a process that takes 6 months. That's a process that can take a year or 2. When you look at winning certain defense contracts on composite materials going into drones or armor plated vehicles and so forth, those are processes that can take a year or 2. And once you're in, you're in for, multiple years. And so I think that as we look at that on a broader sense, we're certainly moving the chemistry into that business into areas that we haven't been into before. We feel that we need to be hiring the marketing, the sales and the technology in the manufacturing platforms to be able to act SSOs. And I think that we're making very good progress, into those areas. Now, how soon the department of defense or how soon the aerospace industry has a rather full plate right now with volatility around a number of different issues. How soon they will be coming into the market? And allowing us to come in the market. I think that's, open to debate right now, but I do think that over the course of 2020, that we'll start seeing some of the dividends of that higher cost structure into the business taking effect. Sounds good. Thanks for the color there. And then I was hoping you could just talk a little bit more about the dynamics in the ethylene amines business. And especially your view going forward, I think one of your competitors is now talking about building a new world scale facility. So any comments there would be helpful. Well, we continue to look at where we can take that business. And I think that we've got a number of very unique applications and grades in that business. We'll continue to take that business further downstream and be looking for, the lubes lube oil additives and the end markets that will, allow us to, I would hope, to have fewer competitors because of our innovation technology and longer contracts with our customers. And so that's really where we're moving. And a lot of these areas when we go further and further downstream as we are in MDIs, we are in advanced materials, we're not competing with, with traditional with our traditional competitors that we're often compared to. I mean, the area of polyurethanes, some of our competitors have system houses and moving it down into system house and so forth. I still don't see really any head to head competition downstream because there are just so many hundreds of different routes that you can go when you start moving MDI chemistry or c chemistry, whether it's in coatings or adhesives elastomers, and so, it will be interesting that when we look at the EA in, ethylene means we certainly will see some competition, but I think we've also got opportunities to further expand our downstream markets. Great. Thank you. Thanks. Our next question is coming from Frank Mitsch from Fermium Research. Your line is now live. Yes. Good morning, gentlemen. Hey, Peter, I appreciate the commentary that the 4th quarter EBITDA is going to be down 15% from the 3rd quarter don't really have a history of monitoring this company on a pro form a basis. I'm trying to reconcile how much of that is typical seasonality versus what is more germane to this economic backdrop. And, you know, we heard earlier today from another company that suggested that October volumes were equal September, is that a comment that you might be able to make as well? Yes. First of all, Frank, let me just express my condolences with the recent passing of your mom and, and, she raised, tough for me to perhaps say She raised a great kid there. So, I'm sorry to hear about that, Frank. Thank you very much, Peter. And I'm looking forward to some wonderful work coming out of the Huntsman Cancer Institute? Well, we are too. We are too. As we look at our 4th quarter, Frank, typically, if you look seasonally, just across the board, you're seasonally down usually 15% to 20%. Usually, the more commoditized end of that would be closer to 20% and the less commoditized would be closer to, to 15%. More commoditized closer to 20%. And I think that what where I'd be just a little uncertain right now is probably my biggest concern, again, as I sit here right now, would probably be Europe. And we've heard rumors, about automobile companies typically shut down the last week or 2 in, in December starting to shut down earlier in the year, perhaps the 1st December. So do we take those at face value right now? Some of the OSB industry from what we understand. Some of the building materials and so forth might have some pretty healthy inventories right now. Longer term housing starts and so forth in North America, the numbers look fairly decent. But depending on how much inventory you have going through the winter, some of those customers might be slowing down a little bit earlier in December. Again, I don't have the raw data in front of me to tell me exactly how much that's going to impact. And so I think that's a bit of a shifting number. So I take out some of the commoditized end of around that 20% seasonality. And I kind of come up with that 15% seasonality. And I think with our more differentiated, less commoditized portfolio than what we've had. I would hope that, that, you're always going to see seasonality in the fourth quarter. I would hope that over in the coming year, so that, that's just diminishing. That's very helpful. And as I think about the stranded costs you called out $30,000,000 in SG and A, that how do we think about overall stranded costs and in terms of a timeline of your ability to take that out of the take that out of your results? Well, I think it will be predominantly in the second half of 2020. Again, we want to make sure that we close on the business, which we see taking place very shortly after the 1st the year. And then we've got some number of shared services transitional services, to look at, as supplying, to Indorama here over the course, particularly over the first half the year, then those will be diminishing throughout the year. And as those diminish, I think some of those costs, frankly, will be eliminated outright and others of them will be shifted as to how we can better focus the company And I wouldn't be surprised if by the end of 2020 that we might have, some completely different reporting structures and so forth within the company that would give shareholders greater transparency into the overall applications. As we look at where we are in coatings, adhesives, elastomers, transportation, the aerospace industry and so forth, you know, construction, industrial, insulation. We are seeing more and more where our urethanes are a poxies, our amines, and so forth, are really selling into complementary applications. And, I look at something as simple as adhesives. And a lot of times, we'll see our MDI in competing formulations and applications with our epoxies. I can't think of a better company we'd rather compete with than ourselves. So as I look at some of those, maybe we ought to be looking more and more at the downstream applications, where we're less asset intensive, less asset focused and more downstream focused on marketing growth and price and pricing excellence. So I think you're not just going to see a focus on eliminating costs, which obviously will continue to but also on restructuring costs. Thank you. Our next question today is coming from Mike Sison from Wells Fargo. For polyurethane, you know, pro form a numbers for fiscal 'eighteen was little over 800,000,000 looks like you'll be somewhere a little over $5.50 for this year on a pro form a basis. So just curious, Peter, when you think about at some point, we exit the industrial recession and things get better. Where can that polyurethane EBITDA go on a pro form a basis if, times improve. Yes. And, as we looked at As we look at 2018, that obviously was a banner year in MDI. And I think even we also saw the benefit of of a fly up and so forth. I would hope that, as we look at the volumes coming back, able take advantage of the margins that we have in place, I would certainly hope that as we look at that kind of that $800,000,000 sort of number that we saw for the 2018 that we can certainly be building on that number. Again, as I look at kind of the recession scenario, if you will, in this company, I think when we look at the last major 'eight, 'nine recession, we saw our earnings drop at about 50%. And I'd say that if we were to repeat that same sort of a scenario, you're probably looking at somewhere between the 30% to 35% drop. What I'm saying is I think that we ought to be seeing less volatility a less falloff, and a more stable earnings platform. So I would hope that, that $800,000,000 would be more of the norm. As we look at 2018 too, you know, I'd remind you that when you take out the spike that we're probably looking at a margin of around 15% in the business. And as we look at our downstream business, our margins are around 20%. And so as you look at moving more and more of that that to that downstream portfolio, that's going to be essential to our growth, our expansion of margins and more importantly, the stability and the maintenance of those margins. Okay, great. And then real quick, I think you mentioned, you don't want to stretch your balance sheet just curious, a little bit of color there. Would you, if there was a good opportunity, how far does can you would you would you go in terms of the balance sheet 2 times EBITDA? And then, are there other opportunities outside of polyurethanes that are interesting for you to do some acquisitions? Yes. Well, there certainly are plenty of opportunities outside of polyurethanes. I think that when you just look at what percentage of our business is polyurethanes MDI and you look at the downstream growth that is taking place, in a lot of those areas. Most of those acquisitions that we've done to date, we've, have been our customers. And so we'll continue to focus in that area. Matter of fact, if you look at over the last couple of years, the bolt on acquisitions that we've done in our polyurethanes business if I look at this kind of on an LTM basis, we bought those businesses at today's EBITDA of around four times EBITDA. And we're going to continue to look at those sort of opportunities. And as we find them in other ends of the businesses, we certainly will be taking advantage of that as well. As we think about leverage levels and so forth, look, we have thought, as anybody's listening on our calls, last couple of years knows, perhaps the most consistent basis is we want to have a strong balance sheet. We want to have a balance sheet, where we can have access to the capital markets regardless of what's going on the macroeconomic environment. And we want to keep to the investment grade metrics. And so those are just fundamentally. I don't want to speculate as to what size of an acquisition so forth or how it would be financed and what have you, just because at this point, it's hypothetical. But I would say that we would certainly put limits on what we would do when we look at that threshold of investment grade. Thank you. Thank you. Our next question is coming from Mike Harrison from Seaport Global. Your line is now live. Peter, in the polyurethanes business, you have the plant fire in Turkey. I believe there was also outage in Rotterdam. And then I think you referenced about $5,000,000 worth of drag from Geismar. But can you just walk through the overall EBITDA impact that you saw from outages in the quarter and let us know if there are any outages that we need to keep in mind for Q4 or I guess, early 2020? Well, as we look at the Q4, we certainly don't see anything at this point. In the between the second and third quarter, we did see an outage we talked about last time that took place in Rotterdam that was due to a third party supplier that went down. They shut down a number of facilities that were in the Rotterdam area, including ours. And, Geismar, we did see an outage there that affected the 3rd quarter numbers well. So when we look at the 3rd quarter, the total impact on that was right around $25,000,000 between Rotterdam and Geismarck. The fire that we had in Turkey, we don't believe that that's going to be impacting our in any material way. We've been able to source materials from our other system houses throughout the European Eastern European area. A few weeks before that incident took place. We opened up a new facility in Dubai. It's it's going to be running very aggressively to, to supply the Turkish markets. I don't see us losing any business, or, materially any margins. Because of that. And we'll certainly be, it's our intention at this time to rebuild that capacity. Alright. And then we're about a year since you started up the additional MDI capacity in China. Can you talk about how that facility has performed relative to your expectations and maybe give us an update on how you're progressing on shifting that polyurethanes business in China toward a more differentiated product slate? Well, I think it's fair to say that that I think that the product that has come out of there is very high quality, reliability and operating rates have been very steady. The facility is sold out as of today. And we have the ability to move those products downstream because of the splitting capacity that we have. And so I think that we'll continue to shift our portfolio more and more downstream into formulated areas and so forth. And that will be a multi year effort right now. We're selling into the component market. And we'll be shifting out of the component markets as we can and building up more and more of our downstream opportunities. But again, we have a splitting capacity in place, to be able to do that without further investment. Our next question today is coming from John Roberts from UBS. Your line is now live. Thank you. On slide 11, where you've got the key end market overlap, textile effects has got consumer, which doesn't overlap with anything else, obviously, and I'm guessing the automotive overlap is pretty small here. So with the weakness in the business, do we need to have some additional, if you're running it for cash, some additional restructuring here or rightsizing or maybe more variableizing of the cost structure there? No, I think that right now our biggest issue that we see in that business is, isn't that the costs are out of line, as much as is the demand and the de inventorying that is taking place. We see two things that are taking place in textile effects right now. 1 is the de inventory that is taking place. And frankly, a lot of capacity in the textile industry is moving out of China, is moving to India and Bangladesh to stand some others. So you're seeing a dislocation of your customer base, and you're also seeing a destocking that is taking place. So we haven't seen since 2008, 2009 time period. Are we losing customers no, are we losing value in the products that we're selling? We don't see that taking place. And I think that a lot of this is a short term affected in the coming quarters, we think that that will be recovering. And then, just to follow-up and I apologize if I ask earlier before, but it's the propylene oxide cost and the ethylene cost and the historical results essentially equivalent to what you're going to get with the Indorama contract post closing? The transfer economics that we've had in the past will continue going into the future. We will not have the benefit of PEO Manufacturing Economic in the polyurethanes business, but the poly, excuse me, the propylene oxide, benefit of the PO that is going to the MDI business. But the MDI in the past, it has been transferred into that business into the system houses and so forth. That will remain the same economics or say, virtually with all of our products across the board, within Hudson, we try to always transfer those at a market or that a most favored nation sort of pricing. We don't transfer them at cost. Okay. So the polyurethane segment this quarter doesn't have any benefit of the manufacturing margin? No, correct. It is not. Correct. Thank you. Not operator. We typically try to not take more than an hour of people somehow. We take one more question, if that's okay. Certainly. Our final question today is coming from P. J. Juvekar from Citi. Your line is now live. Good morning, Peter. This is Eric Petrie on for P. J. Your polyurethanes volumes year to date has increased 5%. If I were to strip out the Caojing plant, start up what are your underlying volumes? And then how do you see the industry demand finishing out 2019? Yeah, we've seen it in our MDI volumes growth for year to date, including the third quarter. We see that that total in our internal growth has been about 7%. And, and I see that what we've seen by and large Europe's up about 5% or 6%. The Americas is flat. And I would say that Asia, well, Asia is up 24%, but a lot of that's because of the new capacity that we've brought into the market. So, but I'd say without that capacity, it's probably flat up slightly. Of utilization rates by region? And if you see ability to push pricing in any of the regions? Yes, I would say that as we look at it globally, I get a sense that the capacity utilization though I don't see a lot of data that's published in this area, but just anecdotally, it feels like it's around globally in the mid-80s. And I would say the Americas were sold out in the Americas. Europe, you're probably somewhere 90%, maybe a few percentage points below that. And Asia, I'd say you're probably somewhere in the mid-70s to 80s somewhere in that area. And so I think that there is some room for, I think any monocum of GDP growth should be the catalyst when you're operating in most of your regions economically around the world between 90% 100%. It should be an environment for potential price increases and, in the chemical industry, Hope always springs eternal. Thank you. Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments. Great. Thanks, Kevin. If you have any follow-up questions, feel free to reach out to Investor Relations. Otherwise, we'll talk to you next quarter. You. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.