Earnings Call: Q2 2019

Jul 30, 2019

Greetings, and welcome to the Huntsman Corporation Second Quarter 2019 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ivan Marcoosa, Vice President of Investor Relations. Thank you, sir. You may begin. Thank you. Good morning, everyone. I'm Ivan Marcuse on Huntsman Corporation's Vice President of Investor Relations. Welcome to Huntsman's 2nd quarter 2019 earnings call. Joining us on the call today are Peter Huntsman, Chairman, President and CEO and Sean Douglas, Executive Vice President and CFO. Morning, before the market opened, we released our earnings for the second quarter 2019 via press release and posted to our website, huntsman.com. We also posted a set of slides on our website, which we will use on the call this morning, while presenting our results. During this call, we may make 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 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'll also refer to non GAAP financial measures such as 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 we which has been posted to our website, huntsman.com. I will now turn the call over to Peter Huntsman, our Chairman, President and CEO. Thank you, Ivan. Good morning, everyone, and thank you for taking time to join us this morning. Let's turn to Slide 34. Adjusted EBITDA for our Polyurethanes division in the 2nd quarter was $201,000,000 versus $269,000,000 a year ago. Our MDI Urethanes business, which includes our MDI polyols, propylene oxide, and formulated systems businesses, recorded adjusted EBITDA of $186,000,000. This compares with $246,000,000 a year ago, and $149,000,000 for the previous quarter. As a reminder, and as we have called out in the past, second 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 rate conditions in the prior year period, accounted for approximately $60,000,000 as the year over year variance. MDI volumes in the quarter were up 11% as the business continued to benefit from the expansion of our China facility that began of a tough operating environment in many of our key markets, our global volumes would have been about flat with the prior year when excluding the new capacity in China. Our downstream strategy is performing well, and our margins remain relatively stable the differentiated expanded operations and regional diversification. In the 2nd quarter, our total differentiated systems volumes increased 7% compared to last year, was particularly due to our new capacity added at our China facility and favorable comparisons in Europe. The second quarter was a tale of two halves for our MDI Urethanes business. We began the quarter with guarded optimism as order patterns improved significantly in March and continued into April as well as a good part May. Also, in China, we were seeing high prices in the component end of the business. Customer confidence was improving there was an increased willingness by our customers to build inventories. However, as trade talks with the U. S. And China began to break down a high degree of uncertainty and a lack of visibility once again entered the market in order patterns slowed significantly in late May and into June. Component MDI prices, particularly in China, also fell back to the levels we experienced in the beginning of the year. In addition to the volatility associated with the U. S.-China trade talks, Our European region remains weak. We are seeing limited growth in our Americas region. Putting this all together the second half of 2019 for our polyurethanes division is starting off weaker than we would have expected at this time, of our last earnings call and visibility remains challenging. Looking at Polyurethanes regionally for the second quarter, our Americas volumes were flat with the prior year. The integration the international markets to accelerate national efforts. Markets, wherein we experienced modest volume growth in the Americas, include insulation, automotive, and the composite wood board market. These were offset by volume declines in our furniture, adhesives and coating markets, while competitive The margins in this region remain relatively stable. Our investment in a new splitter at our Geismar facility is core to our strategy, to expand margins and broaden our product range to accelerate growth in our downstream businesses in the Americas We are still targeting 2021 for this investment to be operational. Turning to the Asian region of polyurethanes, our China expansion fueled our growth region, fueled our growth in the region. However, it should be noted that our differentiated volumes were even when excluding the impact of the recent expansion. This region continues to benefit from insulation growth into large scale infrastructure projects and applications. The adhesives, coatings and elastomers and footwear markets in Asia are also contributors to our growth. We continue to gradually shift our China portfolio and the newly added capacity to be more differentiated. Our automotive business in China declined roughly 8% despite a mid teen decline in the overall market as we continued to benefit from product substitution and gain new customers. We believe that customer inventories are at very low levels which we believe is likely to remain unchanged until to about where they were at the start of the year, there does seem to be some stability at current levels. In Europe, our downstream margins are stable despite lower underlying demand versus the prior year. Our volumes in the region were up, but that was primarily a result of favorable comparisons in due to an extended outage that impacted our results in the same period a year ago. The overall macroeconomic environment remained soft do not expect it to improve in the near term. Additionally, at the end of the second quarter as we were bringing our Rotterdam facility back online from a planned maintenance program. Our outage was extended due to issues from a third party supplier. That outage is now behind us, but it will impact EBITDA in the 3rd quarter by roughly $20,000,000. And negligible impact on the second quarter. The margins in our core base differentiated business continue to remain stable. The graph lines in the upper left hand quadrant reflect the margins experienced globally in our component differentiated urethane portfolios. Majority of our business is differentiated and was not materially impacted by the volatility of component MDI prices. As shown here, our downstream margins remain resilient in spite of continued volatile MDI component market conditions. Our MDI or EBITDA in the Americas continue to be less volatile than other regions globally. On the other hand, Europe and Asia primarily China are down sharply, reflecting the challenging macroeconomic and the environment and its impact on component margins. The good news is that we believe customer inventories in Asia are at very low levels. And with any potential clarity and visibility on the horizon, it could lead to a sharp improvement end results similar to what we saw in April 1st part of May. For Europe, the region remains soft. However, it is not getting materially worse, and we continue to make strides in markets such as insulation and elastomers. I am pleased to see how our Eurothanes portfolio forming in these challenging macroeconomic conditions. Our longstanding strategy to drive this business more downstream through internal investment, bolt on acquisitions is paying off and remains unchanged. We continue to move forward with our high return projects, such as our Geismar splitter investment and building new system houses in certain regions, as well as aggressively looking for bolt on acquisitions that will enhance our portfolio. We expect the third quarter of our MDI Urethanes business will be comparable to the second quarter. Our MTBE business reported an EBITDA of $15,000,000 in the second quarter, and we expect a similar result in the 3rd quarter. Let's turn to Slide number 4. Performance Products segment reported EBITDA of $71,000,000. Total volumes were slightly up versus the prior year, largely because of favorable comparisons due to a planned turnaround that impacted last year's second quarter. This business is seeing similar market pressures that our other divisions are experiencing around the world. Additionally, a more competitive environment in glycol certain amine markets, specifically ethylene amines, has put pressure on margins in that segment. Despite the short term challenges, we are focused on extending on executing our strategy to push forward in our derivatives down stream into more differentiated businesses and applications. We did continue to see growth in our downstream targeted markets such as gas treating oil field services and urethane additives. Our Malaycan hydride business remains relatively stable in North America and Europe. We announced this last Friday that we agreed to purchase the 50 percent of our Malay can hydride joint venture in Germany that we did not own from Sasol. This is to be immediately accretive to our earnings and free cash flow after we close, which is expected to happen in the fourth quarter of this year. The multiple paid for this business is less than 5 times EBITDA. For the third quarter, we expect lower fixed costs and continued growth in certain differentiated markets to result in modestly better quarter on quarter earnings. Turn to Slide number 6. Our Advanced Materials business reported adjusted EBITDA of $55,000,000, a decrease compared to last year's record EBITDA of $62,000,000, but improved versus a previous quarter of $53,000,000. Higher sales in our aerospace markets were offset by lower sales in other markets such as power, automotive, and construction driven by weak macroeconomic fundamentals in Asia and Europe. EBITDA in the quarter was impacted by lower volumes, unfavorable currency translations and higher fixed costs due to recent investments to support future growth in our R and D and manufacturing capabilities. We will continue to invest in this business so that it may capture both short term and long term opportunities. We consider Advanced Materials a core platform for both organic and inorganic growth, Like our other businesses, customer order patterns in Asia remained very cautious. Demand in nearly all of our European markets, except for aerospace, is also tepid. Full year growth in this economic environment will be difficult to achieve although we do expect results in the second half to be marginally better than last year. Once emphasized that Advanced Materials remains one of our most resilient businesses, despite the challenging economic environment in Europe and Asia, more than $15,000,000 invested to date in future growth and foreign currency headwinds, full year EBITDA in this business should be close to 28 or should be close to 2018. Let's move to slide number 7. Our textile effects division reported EBITDA of $28,000,000, slightly down versus last year's record 2nd quarter. This decline was driven by lower volumes due in part to uncertainty grounding trade across many of our Asian markets, causing softer customer demand and supply chain disruption. Adding to the volume pressure, we saw raw material shortages for some of our products due to increased environmental regulation in China impacting certain suppliers. Total volumes were down 11%, but net sales were down only 5% because of the improved mix of higher specialty sales and pricing alignment that have helped to offset the We believe that the total industry is specialty volumes were down in line with the overall market. Our specialty volumes were up 3% in the quarter as customers continue to move towards more sustainable and environmentally friendly solutions that we offering can supply on a global basis. We believe the long term fundamentals for the business are unchanged and remain positive looking out over the next several years. Though in the near term, we expect the current headwinds in the industry to continue, we will likely keep next quarter's EBITDA modestly below the prior year. Before sharing some concluding thoughts, I'd like to turn a few minutes over to Sean Douglas, our Chief Financial Officer. Thank you, Peter. Turning now to Slide 8. 2nd quarter adjusted EBITDA declined year over year by $97,000,000, Our polyurethanes division accounts for approximately 70 percent or $68,000,000 of this decline. Within the polyurethanes adjusted EBITDA variance, approximately $60,000,000 of the decline is due to the loss of spike and tight margins within polymeric MDI and $8,000,000 from MTBE, largely due to lower margins from our PoMTB China joint venture. Our Performance Products segment was down year over year, largely due to lower upstream intermediates profitability and lower profitability in certain amines. We were also negatively impacted by approximately $17,000,000 year over year due to foreign exchange translation as the euro and yen were weaker against the U. S. Dollar by about 7%. Turning to Slide 9. During the quarter, we improved on our working capital by bringing inventory levels back in line with prior year metrics. Despite a 23% decline in our EBITDA year over year, we improved our free cash flow by approximately 38% versus the prior year second quarter. Our improved free cash flow also benefited from reduced maintenance spend as we had a significant planned multiyear maintenance turnaround at our Port Natus facility in the first half of twenty eighteen. And we remain confident in our ability to deliver For the full year 2019, we now expect to spend between $350,000,000 to $360,000,000 in capital expenditures In the current economic environment, we will be diligent In the second quarter, our adjusted effective tax rate was 25%. For the full year 2019 and looking forward, we now expect our adjusted effective tax rate to be between 22% 24%. This is a bit higher than our previous projected rate due primarily to a change in the regional distribution of our earnings. Our cash tax rate remains approximately 300 to 500 basis points below our adjusted effective tax rate. We ended the quarter with about one point of 1.7 times. As we announced last Friday, we acquired the remaining percent interest in However, upon closing of this acquisition, which is expected of 100% of its cash flow going forward and no longer reflect a minority income deduction from our earnings. Within our financial statements for 2018, the minority income attributed to the joint venture partner was approximately $11,000,000. This business generates a strong free cash flow, which in 2018 is estimated to be around 80% of EBITDA. The agreed purchase price is $92,500,000 adjusted for our Using 2018 EBITDA, we estimate a multiple paid of less than 5 times for our partner share of EBITDA. During the first quarter we repurchased roughly 4,000,000 shares for approximately $81,000,000. At the end of March, we have approximately 608,000,000 remaining under our 1,000,000,000 Board authorized amount for a multi year share repurchase program. We expect to continue to repurchase shares in a balanced and opportunistic manner. We continue to hold our 49 percent interest in Venator, which represents approximately 52,000,000 shares. In conclusion, we are confident we will deliver on our annual free cash We remain focused on sheet. Peter, back to you. Thanks, Sean. The beginning of the year, we gave a total year forecast based on our that we saw at the time. As we look at the second half of this year, we see a number of variables that will affect our second half earnings performance. We're always seemingly a single tweet away from economic or political change in market conditions. I think it is worth sharing with you our latest views. Should we see a will be down around 15% results positively would include a beneficial outcome on a handful of trade deals, lower energy prices improved Chinese GDP, a stabilization of the auto and construction industry and falling interest rate However, at the present time, we are seeing more negatives and positives as trade disputes sap consumer and customer confidence. The Chinese and European economies continue to slow. Energy prices remain volatile, housing and automobile markets continue to be lethargic. Should these trends continue, we see our adjusted EBITDA down about 20% plus or minus bit from last year. In spite of where we are in the economic cycle, aggressive steps have been taken to create further shareholder value. These steps are in our control. These steps include: 1, we remain committed to an investment grade balance sheet generating a targeted ratio of 40% free cash flow to D. A. During this past quarter, we generated $240,000,000 of free cash flow. Number 2, This past quarter, we purchased $81,000,000 of our own stock and we'll continue to do so on an opportunistic basis. Number 3, we continue to invest and our organic growth. So we have a number of investments in both manufacturing and research, including our Geismar, Louisiana, MDI splitter, expansion that will allow us to upgrade 70 tons of commodity MDI to more profitable and specialty grades of MDI. I repeat that I am particularly pleased to see how our strategic downstream folk us on polyurethanes has resulted in a much more resilient and high quality urethanes business. Number 4, we continue to take advantage of our strong balance sheet Friday. The acquisition of 50 percent of our German Malay and hydride joint venture from our partner, Sasol. Over the past few years, this business earned over 20 percent EBITDA margins and 75 percent free cash flow to EBITDA ratios. We are acquiring this valuable asset at less than 5 times EBITDA. In spite of some of the economic headwinds that we see around the world, we feel that we're building a stronger and more valuable business that will continue to create shareholder value. With that, operator, can you please open the lines for any questions and comments. Session. Our first question comes from the line of Bob Court with Goldman Sachs. Please proceed with your question. Good morning. This is Don Campbell on for Bob. Can you kind of go through the cadence of earnings into the second half of the year breaking up between third quarter 4th quarter? It seems like you about inventory return in normal levels in terms of your own inventory and talking about pretty low inventory levels in Asia for your customers. Can you just kind of talk about how that maybe could impact the cadence of earnings into the 3rd fourth quarter? Well, I'll let Sean comment on the numerical side of that. On the business trend side that we see, I think that we're seeing a lower demand on, on products right now than what GDP numbers are performing. Say that in times when people are de inventorying as they are right now, times of uncertainty, they're carrying less inventory, because of the uncertainty going to the future. I think that in many regards, we're seeing a very similar scenario that we saw at the beginning of the year where inventories came down faster than than normal. And, and, subsequently, any good news has a tendency to turn those that sort of sentiment around. I would say that in my personal opinion, that is certainly more the case in Asia than the rest of the world. If there's a bounce back, I think that you'll see that in Asia, versus Europe, where I think Europe's probably suffering more from from true, GDP sort of 0% growth, perhaps even negative in many parts of the EU. I'm, I'm less optimistic about a, a turnaround in pricing and demand whereas in Asia, I certainly would be more optimistic about, positive results coming from trade negotiations and any number of things, stimulus spending that's taking place in China, the economic vitality of the Southeast Asia markets and so forth. If we start to see a restocking of that inventory, we most likely will see prices and margins improve with that. Sean, do you want to add from a numerical point of view? No, Peter, you've covered it well. I would just say you've pointed out well that we received a significant benefit in quarter 2 for the inventory reductions. There was an impact offsetting that on the P and L. And as you look at second quarter, you had a big impact on Performance Products, largely about $15,000,000 of impact on cost movement in stocks because of that. As we look forward, I would expect that not to reoccur. So I think from a cadence perspective relating inventory. I think we've taken that impact in the 2nd quarter. Got it. That's helpful. Thanks. And I guess on last quarter you guys talked about global effective operating rates for MDI kind of in the mid-80s. I mean, kind of provide an update where you see operating rates today and kind of how you expect that to trend in the second half of the year? Yes, I would say the second half will continue to see, where we are today. Europe is operating in my guesstimate. Europe is probably operating around 90% capacity utilization in the U. S. At 100% I say that because the U. S. Is importing in product right now. So it's capable of consuming all the MDI produced in North America. And it's, further supplement that with imports coming in from Asia. And Asia is probably operating somewhere in the mid-seventy. Percentile. Always tough to get the visibilities of what's happening in Asia because you have some very large facility, single line facilities over there. And if any one of those lines coming in or out of the market or down for maintenance and so forth, can take a anywhere from 1% to 5% of the Asian market, down on a single line. So I'd say globally, we're probably somewhere in the mid to high 80% capacity utilization. And, again, I would see that that probably, as I look across, particularly Asia, I'm not seeing demand, and I'm not seeing prices deterate further. Have they hit a bottom? I'd like to think so. I think polymeric prices and more commodity grades or if anything, ticking up slightly in those areas. But I think that it's going to take something more than just then just GDP growth to get prices up. I think you're going to have to see some resolution to some of the trade negotiations. Very helpful. Thank you. Thank you. Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question. Yes, good morning. Peter, question for you on capital deployment. You bought back shares in the quarter and it sounds like you got a pretty good deal on the JV buyout with Sasol. Can you comment on your expected balance of future repurchases against the 608,000,000 you still have authorized relative to what you're seeing in the M and A pipeline today? Yes. I think, particularly at these prices that we are going to continue to be buying, as we move forward. But, you know, I would say Kevin that as I hope I've been consistent in the past saying that we are going to, continue to look at Global, economic dynamics and so forth. And if we have a low stock price and that is brought about because of massive global certainty on rest. I think, as tempting as that would be to go out and be very aggressive in share buybacks, 1st and foremost, is going to be the strength the vitality of our balance sheets and making sure that we've got, plenty of dry powder first and foremost for our organic growth and our internal operations. And then we'll be looking at share buybacks. And, we'll continue to be doing that on a a go forward basis on and assessing that almost on a daily basis. Okay. Thank you for that. And then second question, if I may, on, is the capital budget and opportunity for any incremental cost cuts? It looks like you did ratchet down the CapEx for 2019. Can you talk a little bit about kind of where versus maintenance levels at this point and what the possible trajectory could be into 2020. And I guess related to that, if the world does remain quite uncertain and demand continues to languish, are there additional costs that you might be able to take out of the equation? Well, if you think about what I would consider to be our core, CapEx maintenance cost, it's about $175,000,000 a year. And anything much beyond that 175 to 200 kind of range is discretionary. Now you don't stop that spending on a dime if you're halfway into a project and, and, you know, you want to try to save cash. It's you've already pre ordered a lot of materials, you're under contract, so forth. That discretionary spending, while it doesn't stop on a dime, certainly can be slowed, if you were to make an announcement today, for instance, you certainly can pull back tens of 1,000,000 of dollars in the 4th quarter. It's not always the right thing to do because you'll get cancellation fees and so forth. But, yeah, I would just say that if you really were were very bearish about 2020 and you saw an economic calamity taking place, which I don't see. But if you were to see that, you would, be looking at a budget that you probably could, you could probably cut $50,000,000 to $75,000,000, maybe upwards of $100,000,000 of that, for next year. And on the cost side, Peter? You mean on the personnel side? Well, could be any, any sort of restructuring initiatives, that you might have in terms of optionality. I think that, again, I think in a business like this, we're always trying to offset, the rise of inflation that comes into the business. If that's not being clearly offset by growth, then we expect the businesses to be able to control their costs, is we don't automatically see our margins expand on an inflation adjusted basis. So I think that you've always got an opportunity to tweak your cost basis by a couple of percentage points. But as I look through the company today, Kevin. I struggle to see, you know, that there's 250 individuals that we have that don't have anything to do. And we're just going to go, cut those individuals. But if you get into a major recession, if you get into an economic calamities, I said earlier, where you know, you're looking back at 2008 sort of economics. You know, we'll certainly assess the need then and assess the business ability to, to, to pay for those expenses and the customer's ability to pay for those services. Great. Thanks so much for the color. Thank you. Thank you. The next question is from Alexis Yefremov with Nomura. Please proceed with your question. Thank you. Good morning, everyone. Peter, I believe you said you expect MDI polyurethanes EBITDA to be flat sequentially Does this include the negative $20,000,000 from Rotterdam outage? And if so, does this mean that underlying business is actually improving sequentially? Yes, it does mean that. So, yeah, we'd see that sequential and that's what the adjustment. And if I finally follow-up on this, what is what is a source of improvement in, in polyurethanes? Typically, I think we saw a pretty sluggish de inventorying of product during the second quarter. I don't think that you're going to continue to see that, that de inventory. I'm not sure that's a word or not, but de inventory of product take place in the third quarter, the way it did in the second quarter, typically to June, July and, August outside of Europe, typically a pretty strong month. And so I typically, a third quarter is a strong month for us. We'll also see in our elastomers business. We continue to be very bullish on that. And our Demilec business, as we grow that internationally, I just remind you that a little over a year ago, when we bought that business, We had, virtually no international sales on that. And we're now gradually expanding that into Europe and into Asia. And, and that that's going to continue to grow. And I would just say that as we look at automotive, there's some very bearish sentiment I know coming out of Asia and so forth, but as we look at the replacement of competing materials, new applications, and so forth, we continue to be quite bullish on that. Thank you. Our next question is from Jeff Zekauskas with JP Morgan. Please proceed with your question. Thanks very much. I have a question on Slide 4. Is the meaning of the graph that you have that your component MDI margins, dropped in half year over year roughly. You stressed the stability of the differentiated margins as the meaning of this that you're your component margins dropped in half? Jeff, this is Sean. That's a good approximation. As you look at the percentage of our portfolio, which we know is not a lion's share, the lion's share is downstream differentiated, but the upstream, more component and did see that as you probably have seen announced in some of the public views of competitors. Okay. And then I was looking in the the lower right hand quadrant of that slide? And is the meaning of the volume piece that differentiated volumes year over year fell sharply and component volumes rose sharply. Is that the meaning of that or that's not the meaning of this lower quadrant? No, the lower right hand quadrant, what it's a literal state there that year over year, you're seeing growth rates. So as you look at the differentiated volume growth, the downstream growth, you're actually literally seeing a 7% growth versus last year. And you're seeing on the gray bar, you're seeing a growth in the more commoditized upstream part. That's largely driven by the expanding, capacity that's come on in China. And, Jeff, Jeff, just a reminder, as we bring on China, we're first selling that product into the component market, in where the demand is largest in that dealer market. And then we're going to continue to take that product and move it into the downstream differentiated growth within China and within Southeast Asia. So you'll continue to see that shift taking place across the board because it's a new facility. But I, I would hope that over time, we will continue to see, that, that component volume in China moving further and further and differentiated. And as we look at where we've been investing in our systems houses, in expanding that in Taiwan and so forth, we will continue to see that. We have the infrastructure, and we're building out the platform to be able to accomplish that. So why does the blue bar fall a lot and the gray bar rise a lot? What's the meaning of that in the second quarter of 'eighteen versus the second quarter of 'nineteen? Yeah, again, I would think that a lot of that has to do with the growth that we're seeing in the component end of the market, versus the differentiated side of the market. And and so and part of that also, remember that during a a chunk of that time period, we were also able to see the Rotterdam expansion took place, in, it's the latter part of 'seventeen and 'eighteen and, and also Demilec. And so you'll see an unusual, I mean, I wouldn't expect to see differentiated growth of around 16%, 17% on a quarterly basis. And so with the expansion we saw in Rotterdam coming on at the end of 'seventeen, with the Demilec acquisition and so forth. We did see differentiated growth quite aggressive during that time period And, you know, that's going to fluctuate a little bit as we it'll be overshadowed by the growth that we see in component, with the startup that you see from this chart starting in the third quarter of 'eighteen, fourth quarter of 'eighteen and going into early 'nineteen as well in China. Thank you. The next question is from Jim Sheehan with SunTrust. Good performance on free cash flow this quarter and you're still targeting that 40% conversion rate. Can you just talk about what your outlook is for net working capital in the second half. And also maybe, you know, what pension and some of the other items might look like? Sure, Jim, this is Sean. You'll always see in our business in the fourth quarter a benefit on working capital just from seasonality. So, as you look to the rest of the year, you're still going to see, additional benefit coming from working capital. In addition, just ongoing efforts to continue to improve on inventory and receivables. As it relates to pension, I think we've mentioned before that on an annual basis, our cash spend on pension is about $100,000,000. And so I wouldn't expect that really to be anything different than you've seen in prior years. I think the rest of the components of the cash flow, Jim, shouldn't be all that surprising cash interest, should be what it, what we've always indicated it would be. From a cash tax perspective, as we look for the full year, I would expect that number to be somewhere around $150,000,000 for a full year. On cash taxes. And that fits in with the percentages we've stated. So I think from a perspective of maintenance and half of the year. We do have a little bit of spending ahead of a POMTV turnaround that we have scheduled for 2020. That will happen as we finish out this year, but I wouldn't expect a lot of surprise on that maintenance line between now and the end of the year either. Thank you. And in terms of MDI spot prices in Asia, looks like some consultants are calling for prices to move higher in the fourth quarter, but one of your competitors expressed some skepticism of that. What is your view on the potential for higher pricing into the fourth quarter? Well, again, all manufacturers will have different, end use applications, combination of customers and so forth. And so I'm, I'm, I'm not surprised that there wouldn't be some variations and differences of what people are seeing with different customer bases and so forth. I think that we'll we're we, as I said in my comments, we're convinced that we've seen the bottom of prices third quarter 4th quarter. And if anything, prices are starting to edge up, and I would think that we would see a gradual improvement in the fourth quarter on component pricing. Thank you. Our next question is coming from the line of Frank Mitsch with Fermium Research. Please proceed with your question. Hey, good morning folks. Peter, I really appreciated the commentary when you were discussing polyurethanes. On how the second quarter started out and then stated, kind of in the mid May time frame. And I was wondering, you know, how you might apply that pace of business commentary to the company overall. And more importantly, here we are at the end of July, you know, how is July overall in terms of pace of business? Well, I, I'm, Frank, good to hear from you. I have not seen any numbers, from July, just, you know, since sales data and so forth. But as we look at it, it feels pretty flat. I think that it's, I think it beyonce, I think June was a pretty tough month from volumes and overall sentiment in July, was, was likewise at the beginning. And I think we've We feel like we have bottomed out, if you will, particularly in Asia in demand. And, The question is just how quickly does that turnaround. Again, when I when I talked to my prepared remarks, about negative sentiment through the second half. I'm assuming that there are no trade deals that are going to materially change the business. Assuming that there's no GDP growth at turnaround in China. I would just say that China is in Asia, in particular, or I should say Asian flu in China are, I think, very susceptible to, to, to the trade sentiment and so forth that's taking place. And, I, I think that as you see a resolution in something ability, you'll see consumer and customer confidence return. Right now, we look at the number of distributors and freight forwarders and 3rd party handlers in particularly in China. Inventory at those levels, is very low at this point. I don't see that getting worse. And if anything, you know, there might be a bit of a shock in the industry. Should there be any sort of positive sentiment that would cause them to start buying and replenishing that. All right. That certainly is helpful and if I could, ask a question on the, Sasol JV acquisition, you know, my first reaction is you're buying Lake and hydride at under five times EBITDA seems like a, seems like an attractive transaction. I'm curious as to how the performance of that business has been in terms of a stability of EBITDA growth declines, etcetera. Can you kind of paint us a picture of how that business has been trending over the past couple of years? Expectations, for, for 2020? Well, I think that, you know, as we look at the revenues over the last 4 years here. They've gone from about $100,000,000 up to about $150,000,000, over the last couple of years. And EBITDA, I think 20 14, 15, 16. We kind of saw a lot of new capacity coming on during that time period. And EBITDA margins back in 2016 were just right around 2021 percent. And, more recently, they've been in the mid upper-twenty percentile. So it's, Yeah, it is a joint venture. Joint ventures, I'd say, just say on, on, I'm not trying to defend Saphyl or Huntsman's, purchase price on either side. Joint ventures are always a tough thing to sell, especially when there's a, a rider first refusal on that one party has over the other. And if it were Huntsman selling, I'm not sure that we would have been able to get much of a different price than what we experienced. So from a joint venture point of view, again, we already booked the EBITDA, but we'll be able to, to book, consolidate the cash side of that business. And, and more importantly, we'll be able to absorb some of the synergies or create some of the synergies a couple of 1,000,000, low 1,000,000 of dollars. And, have the control of the marketing and the sales within the European market. So It's a business that an industry that we feel very comfortable with. We like the technology. We like the catalyst. We're we make, high margins on those products and that technology. And, it's a, it's been a great relationship with SAS all over the years. And, and, you know, but it's, it's, I think it's a great move. It'd be a good move for this company. And I think people at SAS will appreciate your, your answer to the question. Thanks so much, Peter. Thank you. Thank you. Our next question is from Matthew Blair with Tudor Pickering and Holt. Please proceed with your question. Hey, Peter. I think in the past you've talked about normalized global MDI demand growth in kind of like the 5% to 6 percent range. Do you have a number? What does that look like today? And then, perhaps simplistically, Could you just force rank the end markets, from best to worst, you know, like installation, furniture autos, you know, if you just had to force rank it, what would it look like from best to worst? Well, first of all, on, as we look at MDI, I think a long term number to use on MDI, is, is realistically somewhere between 6% to 8% right around, you know, 7 center. So in any given time, if you're going to see the inventory taking place or restocking taking place, you'll see short term volatility. If you look a month to month or even quarter to quarter basis. I would say today that MDI growth, as you take a snapshot right now, is probably in the 2 to 3, percentage range of growth. But I think, again, as you look at it on an overall basis, on average, it's a product that has grown not just last couple of years, but last decade or so, it right around a, a 7% growth. As I look and I'm, I'm speaking about Huntsman here. I'm not speaking about the industry. As I look at areas where we've seen, the greatest amount of growth for Huntsman on a global basis, I'd have to probably point out insulation the composite wood material ace, which is our adhesives coatings and elastomer footwear, We continue to see growth in those areas. Furniture for us continues to be quite lethargic. And for us, we're I'm not saying we're not dedicated to that end use, but it's, it's, there's not a lot of high-tech growth that's involved in that. And I'm not sure that you're going to see Huntsman really ever growing it at 10% or something in furniture. I would say, as we look at automotive, while globally, as we compare automotive in the second quarter to last year, it's flat. I would say that If you look at the massive step down in demand that we've seen particularly in China, I think that we've performed remarkably well, in the growth that we've seen in automotive. And that, that too is going to continue to be an area that we are quite bullish on. Sounds good. And then with the China component MDI volumes ramping up, what is your current systems MDI share? I think in the past, it's been, you know, roughly 70% to 75%. And, I guess where do you see that that share, that that system share in, say, like, 3 to 5 years from now? I, you know, I I think that it'll probably remain fairly close, to where we are, right now. Overall within the company. And that's not to say, you know, I think there might be a little bit of a perception that the component MDI is bad and system MDI is good. And I would remind you that a lot of our component business is very high margin business. It's very stable business, and it's business that we're going to be in for many years to come. So I think that when we look at those macro percentages, that kind of that 70, 75 to to 30, 25 sort of split between the 2, that's not to say that we're standing still. It's to say that within that differentiation within that separation of chemistry that we're always upgrading, our formulations business, and we're always upgrading our component business. And we're going to have different marketing and sales approaches in each of those areas. But I would hope that, year on year that we're always going to see the quality of the customer, the, the margins that we're able to achieve focusing on, on smaller, perhaps smaller applications, and higher margin applications. As we look at the overall split, we, for the next couple of years, we're going to continue to see have a sixtyforty split in Asia between, component and formulation. And overall, we'll be moving China to be that same sort of balance that we see in the rest of the company of around a 75, 25 split. Great. Thank you. Thank you. Thank you. Our next question comes from the line of Laura Alexander with Jefferies. Please proceed with your question. Hi, there. Could you flush out a little bit the volatility in A means, how unusual is it And how much was it? Well, it's always good to hear from you. As we look at our, amings, that's probably one area of the business that, that I've, well, I, it's kind of like your kids. You never disappointed any one of them, but you love them all equally. I think that the A means business is probably I've been a little bit surprised to see how much over capacity, has come into the amines market in the last quarter or so. But it is shown in the past that there's the amines family of chemistry that we have there is very resilient. I think longer term, it's going to continue to be a strong performer for us, but short term, We're down with our ethyleneamines and we're seeing some of the new facilities that have started up around the world. That have come into the market. I think a little more aggressively with more tonnage and maybe we had expected. But that's competition. But I don't see that being a long term trend. That's something that we'll bounce back from. And, and, like I said, it means by and large, over time, it's been a, been a great attributor to this company. And then I guess what I'm getting at is how much of the EBITDA hit in the quarter was the A means business? It's about $15,000,000, the hit on that. And so it's, yeah, right around that area. And, what sort of assumptions as you're thinking about the full year outlook, what kind of assumptions are you using for extended shutdowns in either the summer or, in either August or in December? Well, I I don't see us having, any any, you know, any large shutdowns that we have planned for the fourth quarter of this year. So I'd say that we ought to be able to see pretty consistent earnings during that time. As pertains to impacts of shutdown. Our biggest problem, to be honest with you this year in 2019 has not been the shutdown as much as it's been 3rd party suppliers to, to our facilities such as in Rotterdam and so forth, where we've seen rather unreliability rather unreliable, supplies coming in of raw materials. Yeah. And I guess I have to ask the wrong question. In terms of your sense of vulnerability this year? Sense of vulnerability on just if we have more disruptions, along the Rhine this time around? No, I think I'm not expecting anything that would materially impact the business. Our next question comes from the line of Josh Spector with UBS. Please proceed with your question. So just a question on polyurethanes volumes. So if you had differentiated up 7% MDI up around 18%. The segment as a whole was around 7% with that Rotterdam included what was down year over year, to bring the segment to 7% overall? You mean, from a finished, application finished products? So just overall, I mean, overall polyurethanes reported 7% and I mean, I I know that the biggest piece would be the differentiated part of that, but MDI component was up so much. I would think it would have dragged the segment up more. I don't know if it's polyols that were down or something else in that range. I think when you look at the the biggest flywheel in volumes quarter on quarter, you'd be looking at MTBE. Which we include as part of that overall volume is, is, polyurethanes. Okay. All right. No, thanks. That's helpful. Thank you. Thank you. Our next question comes from the line of Hessam Ahmed with Alembic Global. You addressed some of these things, on the call, but just wanted to dig a bit deeper into the evolution of sort of business condition through the course of Q2 in MDI. Obviously, it was a bit of a quirky quarter because you had several maintenance turnarounds in China in particular in April, right? So it seems pricing went up a bit on the back of effective utilization rates tightening. Then that capacity came back online, pricing went down. So it seems that ahead of those turnarounds, there was a restock exercise, then a destock exercise. So so two questions on that. Where do you see effective utilization rates in Q3 relative to Q2? And the second part is you mentioned inventory is really lean, and, you know, it seems that way. So if at all, business conditions do normalize, and I think you alluded to this, could we actually see a pretty big rip in terms of restocking? So, yes, if you see business conditions, kind of normalize again. I think you definitely would see something like that take place as far as, an improvement in margins. The prices where they are today, where they were a few weeks ago, it's very similar to where they were earlier in the year when we kind of saw a low multi year, low point in, in component prices in China I see those, those prices in, gradually edging up, during the third quarter 4th quarter. I I would say that that, again, just anecdotally, my gut feel is that, customer sentiment probably has more to do than capacity utilization. And as we look at the sentiment and that what I was referring to earlier about, how much confidence do I have in the next quarter? How much inventory am I going to be carrying? How much in pricing direction do I want to take a hedge on that? I think that has more to do than capacity utilization. So, yeah, during the you know, during the shutdown, phases that we saw earlier this year, a lot of those people when they shut down have inventories that are built up. They're swapping pounds from other facilities and other producers and so forth. I'm not sure that that really drives margins and demand at sentiment, nearly as much as pessimism around a trade deal that seemingly has just gone on now for a year and a half, two years. And there's a bunch of false rumors and false start something's coming due, a conclusion. We never seem to get there. I think that's probably weighing as much on sentiment and margins in Asia as anything right now. Understood. Understood. And as a follow-up, I mean, you talked about, obviously, customer sentiment, but, you know, the the other part of it is producer sentiment. You know, couple of companies, not not in MDI, but in other sort of, chemical product areas, seem to be announcing project deferrals. Are you seeing any sort of semblance of that or any indication of that within the MDI side of things? I'm I'm really not. The they're they're not a lot of MDI projects right now that that, you know, are announced in the pipeline. You know, that are act actively. I mean, there's, there's been, there have been some announcements of late, you know, but I'm talking about projects where there's actually construction and huge spend that are taking place right now. I'm not sure that there's a lot of that in polyureth has taken place. Understood. Thank you so much, Peter. Operator, why don't we take 1 or 2 more questions? I think we're nearing the top the hour. And as much as I'd like to do this for the next 2 hours or so, I'm not sure that the interest of our listeners would be equal to mine. Absolutely. Our next question comes from the line of Mike Sison with KeyBanc Capital Markets. Please proceed with your question. Hey guys. Peter, just your current thoughts on your 2020 goals. A lot of companies given a tougher 2019 has have kind of delayed some of those goals, but just any thoughts there? Well, again, tell me what macro environment will look like. And I'll kind of tell you where we're going to be. I think that, you know, goals are always a tough thing. When we look at the growth We look at our objectives around cash flow generation. We look at those things that we can control. And that's there's always two variables in business that I think that we try to focus on. We try to mention that at the end of all of our prepared remarks. What are we doing that we can control what's happening in the macro. Whenever I write down and, and, my, my sentiments for the end of these, prepared texts, And I think about, you know, are we able to, to execute on the acquisitions and the, to investors, are we able to achieve the 40 percent free cash flow to EBITDA? Are we able to manage our working capital? Are we able to push product further downstream in improve margins and so forth. And those things that we can control, I'd like to think that we're on course to hit those 2020 objectives that we've laid out to our customers. As we look at the macro economy, you know, I, I, I certainly can this company certainly can't, offset what, what 1% growth in China is going to do versus a projected 5% or 6% growth when we actually get to 2020. I continue to be an optimist. I think that moving into an election year, you're probably going to see a resolution to the trade deals in Asia. And I think that you're going to see some volatility or lack of volatility in the Middle East as issues are resolved there. And you typically, you see more stability going into an election year. And I hope that that's the case this next year. And if that's the case, I think 2020 is going to be a very good year. Thank you. Our final question comes from the line of Mike Leithead with Barclays. Please proceed with your question. Thanks. I appreciate you squeezing me in here. Question for Sean, if I look at your new EBITDA guidance, you're calling for roughly similar EBITDA second half versus first half now depending on how the macro shakes out. But free cash flow generation in second half is expected to be more than double the first half. What's driving that? Yes, sure. What you've got is truly you've got a pretty good benefit still coming on on working capital in third quarter 4th quarter. You still see that move. And, you're not going to have, perhaps as much, T and I type expenses that we had in the first half, as you see into the second half on maintenance. So I think you're going to see the benefit on working capital. That should help offset some of the perhaps changed view you've got on EBITDA on the top line. But confidence is high on being able to hit that near 40%. I would just note, I would just note that in first quarter, I think we called this out in the first quarter. We were a little bit disappointed as to the suddenness of the slowdown that we saw to the beginning of part of the first quarter, and the inventory that was built up because of that. I mean, if demand, typically, you're producing product anywhere from a week in, in some products like MTBE a week before it shipped to, some of our means, for instance, in some of our downstream urethanes. You're producing those products 1 to 2 months before they're shipped. And so if you see a falloff in demand that can be sudden, such as destocking, you're going to see a working capital for that quarter. I think we're I hope we tried to spell that out clearly in the first quarter results on our last conference call, you're going to be hit rather quick, suddenly, which we were in the first quarter on working capital change. So let's, I think it's best probably to remain focused on where you're going to be on a yearly basis rather than the volatility and the sound, the you get from a quarter to quarter basis. Got it. That's helpful. And if I could just return to slide 4, component margins are down. I think you said, call it roughly 50% year over year, but your component volumes are up call it 15, 17 ish percent year over year. So I guess is there any concern that as you're ramping out the expansion in your Chinese facility that somewhat exacerbating the situation that you have there in Asia? Or is the goal really to just kind of fill that facility out as quick possible and get unit margins, positive there? No, I think that I personally, and I mean, I'm sure there might be some different views on this. As we look at, at our product, I think that we put it into the market responsibly. I look at when the biggest volumes improvements that we saw of Huntsman moving, that component material, particularly into the Chinese market was during the first quarter moving into the second quarter is actually the time we saw prices, component prices going up. So I think that, you know, I think we've done a very good job in putting that product into the market as our customers grow and as we have an opportunity to expand. But no, we are not going to be a manufacturer for capable of running it 100% of running it 100% and just flogging the market. Operator, thank you very much, for, fielding the questions. Thank you. We have reached the end of our question and answer session, I'd like to pass the floor back over to Mr. Huntsman for any additional concluding comments. No, everybody. Thank you very much for taking your time, joining us and this should conclude our call. Ladies and gentlemen, again, this does conclude today's teleconference. We thank you for your participation in