Earnings Call: Q4 2018

Feb 12, 2019

Good day and welcome everyone to the Q4 2018 Huntsman Corporation Earnings Conference Call. My name is Matthew, and I will be your operator for today. The end of this conference. As a reminder, This call is being recorded for replay purposes. And I would like to turn the call over to Ivan Makuza. Please go ahead. Thank you, Matthew, and good morning, everyone. I'm Ivan Marcuse, Huntsman Corporation's Vice President of Investor Relations. Welcome to Huntsman's 4th quarter 2018 earnings call. Joining us on the call today are Peter Huntsman, Chairman, President and CEO Sean Douglas, Executive Vice President and CFO and Tony Hankinz, President, Polyurethanes. This morning, before the market opened, we released our earnings for the fourth quarter 2018 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, you may make 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 patients that 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 will also refer to non GAAP financial measures such as adjusted EBITDA, adjusted net income or loss in 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. And our earnings released this morning reported fourth quarter 2018 revenue of $2,200,000,000, adjusted EBITDA of $275,000,000 and adjusted earnings of $0.52 per diluted share. Now turn the call over to Peter Huntsman, our Chairman, President and CEO. Thank you very much Ivan. Good morning, everyone. Appreciate you taking the time to join us this morning. Let's turn to slide number 3. Adjusted EBITDA for our polyurethanes division for the fourth quarter was $169,000,000 versus $294,000,000 of a year ago. Our MDI Urethanes business, which includes our MDI polyols, propylene oxide and formulated systems businesses recorded adjusted EBITDA of $175,000,000. This compares with $291,000,000 a year ago $242,000,000 for the previous quarter. As a reminder, in fourth quarter last year, we temporarily experienced exceptionally high margins in the component end of our Urethanes portfolio. That short term spike in margins of roughly $85,000,000 of EBITDA is now gone. As we explained in our previous quarter's call, we saw destocking and softer demand in certain market segments and we saw softer component MDI prices. Nevertheless, we grew our overall MDI volumes by 5% and our downstream differentiated strategy proved to be a success as we saw stable margins in the larger differentiated end of our portfolio. I think it is important to point out that despite a very different market backdrop, in this year's fourth quarter versus a year ago, our MDI Urethanes business still reported the 2nd best 4th quarter ever in our history. We accomplished this because of our continued drive downstream, bolt on acquisitions, expanded operations, and regional diversification. Let's turn to slide number 4. In the fourth quarter, our total differentiated systems volume decreased 1% compared to last year. While our differentiated margins remained roughly flat. Our global component MDI grew 16% year over year due primarily to increasing capacity at our China facility. And we will bring supply into the market as demand dictates. Looking at polyurethanes regionally, our Americas volumes increased 4%. Our 2018 acquisition of Demilec added about 8% to our Americas volumes. The integration of our Demilec acquisition is well on target. Thereby further accelerating its growth. We experienced sluggish demand in our America's composite wood products, due to seasonal slowness and de inventory of customer stocks. Our adhesives, coatings, elastomers and automotive businesses did continue to experience growth We recently announced and approved the construction of a new splitter at our Geismar, Louisiana facility. We expect to commence of 2021 at a total cost of about $125,000,000. This new splitter will be very similar to the splitting technology that we have recently built spend our product range, not our overall product capacity. The startup of our China expansion has fueled solid volume growth in Asia. This region continues to benefit from insulation growth into large scale infrastructure projects, such as district central heating and other new infrastructure applications. The adhesive coatings in elastomers and footwear markets in this region were also contributors to our growth. As we continue to gradually shift our China portfolio and the newly added capacity to be more differentiated. In spite of published decline in the Chinese automotive industry in the fourth quarter, our MDI systems in the automotive increased 5% driven by high end automotive and continued trends around substitution. While this region did grow for us in the quarter, the uncertainty around trade softness in the Chinese economy and substantial customer destocking caused volatility in this region that negatively impacted component MDI demand and margins. I remind you that our largest exposure to component MDI volatility is in Asia. Current visibility in this region is somewhat difficult given the backdrop of trade talks and being only a week out from the Chinese New Year. We would expect the softness in MDI margins that we saw in the fourth quarter to bottom out in the first quarter. We believe at the present time, that we have seen an end of destocking as inventories at the customer end are at very low levels. Regardless of the environment, our focus will be on growing our downstream business in this region. Our downstream margins in Europe were stable. However, our volumes in Europe were negatively impacted by lower demand and substantial destocking through the fourth quarter. Our installation and adhesive businesses were impacted by lower commercial construction demand as well as in automotive. The destocking in Europe that we discussed on our third quarter call increased through the quarter. We believe this is temporary and somewhat exasperated by geopolitical issues, most notably Brexit. We believe that the spike margins pointed out in our previous calls contributed approximately $85,000,000 to last year's fourth quarter. These short term spike margins are now fully eliminated. We currently believe that global industry operating rates are in the mid-80s compared to a year ago when they were in the low-90s. Separate and apart from our highlighted spike margins, the gray portion of the bar, and I'm referring to the upper right hand corner of Slide 4. We also, we also transparently disclosed that in tight industry operating rates environments, we benefited from an additional approximate $30,000,000 to $35,000,000 per quarter, the red portion of the bar. The global industry conditions in the fourth quarter that we have referenced, especially in China and Europe, have resulted in the erosion the blue portion of the bar is robust and stable. The MDI industry operating rates have minimal correlation to our core business, The more we move downstream, the less we will be impacted by MDI industry operating rates. Let's turn to slide number 5. As indicated in these 4 charts, the margins in our core base differentiated business continues to remain stable. The graph lines reflect the margins experienced globally and by region within our component and differentiated urethane portfolios. A significant majority of our business is downstream and was not materially impacted by the short term volatility of polymeric MDI margins. Despite the recent global destocking and economic uncertainties, we have not seen a material change in the long term fundamentals of the MDI market. While there has been recent announcements of capacity addition by other parties in the industry, we believe that the industry will absorb the new capacity over time, when this supply eventually enters the market. Industry utilization rates may ebb and flow over the short term, but on average, We expect the industry to remain balanced over the long term. Absent a major macroeconomic change or major unplanned outages, We believe that 2019 capacity utilization rates will remain in the mid to upper 80s and that 2020 will move into the upper 80s to 90%. Our outlook for average annual global demand growth is in the mid single digits, which translates to roughly 400,000 kilotons annually, the equivalent of a new world scale plant each year. Again, irrespective of this long term view, the more downstream we move, the less relevant these upstream utilization rates are to our integrated portfolio. Let's turn to slide number 6. We've been successful in commercially and geographically scaling up our organic developments and bolt on acquisitions to achieve enhanced synergies resulting in meaningful growth and value creation. Our bolt on acquisitions have provided substantial growth to our portfolio. In 2018, the combined EBITDA of these acquisitions was above $180,000,000 representing 24 percent Humiviv annual growth rate. Looking into the first quarter for our MDI Urethanes business, we anticipate the first quarter to be modestly lower than our 4th quarter due to normal seasonality and a $10,000,000 to $15,000,000 negative impact from higher cost inventory in addition to continued tepid demand across several of our key regions and markets. March is our strongest month in the first quarter. At present time, we have very little visibility and we'll update the market throughout the quarter. Our MTB business reported an EBITDA loss of $6,000,000, which was slightly below our expected our expectation of breakeven. Our first quarter is usually our slowest demand period for MTBE. This seasonality and the recent embargoes with Venezuela, a large consumer of MTBE, I suspect our first quarter results will be softer than MTBE while we ought to be breaking even on a total year basis. Our polyurethane business remains on track to meet our 2020 effective Turning to Slide number 7. The Performance Products segment reported EBITDA of $78,000,000 considerably higher than last year's EBITDA of $47,000,000 when the business was negatively impacted by approximately $27,000,000 due to a planned maintenance turnaround, weather related issues and an unplanned outage. Excluding these issues in the fourth quarter last year, performance products still experienced 6% EBITDA growth despite a challenging economic environment. Primary growth drivers in the quarter were in gas treating, oilfield chemicals and agrochemical markets. Looking forward to 2019 and beyond, we expect further growth in these markets as well as our fuel and lube additives in advanced technology markets. We also will continue to drive our downstream derivatives in the more differentiated businesses and applications. Malay and hydride demand remained strong with good margins given falling butane prices. In the current economic environment combined with some tough comparisons this time last year, we expect first quarter to be similar to 4th quarter, maybe a little bit stronger. Similar to our polyurethanes division, We see very little customer that we will see a pickup in overall business in Q2. This business remains on track to meet its 2020 targets as well. Let's turn to Slide number 8. Our Advanced Materials business reported adjusted EBITDA of $48,000,000. A decrease compared to last year's EBITDA of $53,000,000. While our aerospace volumes were up year over year, we experienced lower volumes specifically in our increases. Fixed costs were a bit higher, including costs from our 2018 technology acquisition of Miralon, as we continue to make planned investments in R&D for next generation technology to drive future growth. Our specialty volumes decreased by 2% versus the prior year. We do not expect this to be a long term trend as order patterns in our key specialty businesses are returning to more normal levels as temporary destocking and inventory corrections and customers come to an end. Notwithstanding the softer fourth quarter of 2018 was a record year for Advanced Materials with a total EBITDA of $225,000,000. It should also be noted that this record result happened despite over $40,000,000 of headwinds in raw materials and higher costs associated with investments in R&D And Product Development. We expect materials in the near term. We would expect first quarter 2019 to be moderately lower than last year, but meaningfully better than fourth quarter. This business remains on track to meet its 2020 targets. Let's move to slide number 9. Our textile effects division reported EBITDA of $21,000,000, up 11% versus the prior year EBITDA of $19,000,000. This is the 13th straight quarter over quarter increase in EBITDA within textile effects. Because of pricing initiatives to offset raw material price hikes, revenues for the quarter were up 6% while overall volumes were down 7%. The decline in volumes was primarily due to some deselection of lower value business raw material constraints in China related to certain regulatory enforcements and some slower order patterns in Asia and South America. Our specialty volumes increased 6% and the long term macro trends remain intact relating to increasing environmental and sustainability standards in both chemicals and dyes. 2018 was a record year for textile effects, which reported EBITDA above $100,000,000 for the first time in its history. This level of earnings was achieved even in the face of over of raw material headwinds. We still expect continued growth in this business, driven by continued innovation and technological expertise throughout our specialty and differentiated portfolio. Looking forward, this first quarter will look similar to last year's first quarter. 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 to Slide 10. In total, adjusted EBITDA declined year over year in the 4th quarter from $360,000,000 $275,000,000. This was roughly on target as we had guided the market to approximately $280,000,000. Peter mentioned that the $85,000,000 of spike margins in polyurethanes have been removed. Our increase in volumes for the quarter year over year largely the result of China MDI expansion were offset by a decline in margins primarily in component MDI. In the fourth quarter, we had little impact from foreign exchange, but for full year 2018, we benefited by approximately 60 the prior year, we expect some foreign exchange headwind as the average euro rate for the first quarter 2018 was approximately 1.22 versus the current rate of 1.13. At the Cural At the current euro rate, we estimate this impact to be approximately $20,000,000. Turning to Slide 11. We were consistent in generating strong free cash flow of $651,000,000 Our free cash flow percentage was 44%. This is 3 year straight of free cash flow in excess of 40%. Our free cash is return on invested capital or ROIC. Our ROIC for 2018 was 19%. Our ROIC for the polyurethanes division was in excess of 30%. Our polyurethanes division retains a high ROIC year after year because of its downstream strategy. The ROIC for Advanced Materials business is also above 30%. With our Performance Products business at approximately 15% and textiles near 20%. During the fourth quarter, we exceeded our expectation of 40% free cash flow largely due to a one time improvement in the way we manage liquidity in China. This is primarily the result of improving This added approximately $70,000,000 of free cash flow and contributed approximately 4 This improvement will be will help to fund this year's expanded capital plan which includes the new MDI splitter at Geismar, Louisiana. Even with this expanded capital plan in 2019, we still target a 40% free cash flow in 2019. If we land just shy of this, it is because of the timing of these one time funds already received. We spent $305,000,000 spend approximately $390,000,000 during 2019. We ended the year with greater than $1,500,000,000 of liquidity. I would like to point out that Keep in mind that during the year, we made 2 bolt on acquisitions, totaling approximately $375,000,000 and repurchased $276,000,000 of unswering shares. We are well within investment grade metrics and even better than a year ago. We reaffirm our intent to be an investment grade company. As we look into 2019, with respect to other components of free cash flow, we would expect cash interest expense and cash pension 18 largely because we have fully utilized certain net operating losses. In addition, there are some timing effects in certain jurisdictions. With respect to restructuring, consistent with previous guidance, we expect to spend approximately $30,000,000 per year. We remain focused on managing our working capital effectively. Our overall cash conversion cycle measured in days remain relatively flat on average year over year. We have plans to continually improve our days inventory as we look into 2019. Our effective tax rate for 2018 came in at 19%. Our long term effective tax rate is expected to at an average price of $22.40 per share. For all of 2018, we repurchased approximately 10,400,000 shares or $276,000,000. We have $724,000,000 remaining under our $1,000,000,000 multi year share repurchase program authorized by our board. We expect to continue repurchasing shares in a balanced and opportunistic manner. Our current dividend yield is approximately 3% and when combining Both dividends paid and share repurchases completed during 2018, we returned approximately 9% to our shareholders. On December 3, 2018, we entered into a forward sale transaction with Bank of America Merrill Lynch whereby we sold 4,300,000 shares of Venator and deconsolidated Venator in our financial statements. We have received approximately $19,000,000 relating to the sale of 4% of total Venator shares. Following this transaction, Huntsman has retained 52,100,000 shares in Venator or 49 percent of Venator. Regarding the accounting for Venator, in connection with the deconsolidation on December 3, we recorded a pre tax loss of $427,000,000 reported in discontinued operations. We then elected the fair value option to account for our equity method investment in Venator post deconsolidation Accordingly, we also recorded a pretax loss of $62,000,000 to record our equity method investment in Venator. At fair value for the change in Venator stock price between December 3 December 31. Going forward, Huntsman will record As a non operating special item, a mark to market change of Venator stock for its 49% ownership within its financial shape, statements. We believe this gives greater transparency to the value of Huntsman's investment in Venator. With Venator now fully deconsolidated and given where TiO2 companies are trading at the current time, we will be prudent in monetizing Huntsman's remaining stake gaining proper consideration to all material relevant factors. In summary, Huntsman's balance sheet has never been stronger, We have been true to our commitment to deliver strong, consistent free cash flow and maintain an investment rate balance sheet. Peter, back to you. Thank you, Sean. As we reported the final results of 2018 and look ahead to 2019, I'd like to take just to make a few comments and perhaps answer some often ask questions. I felt we finished 2018 on a very strong note. We generated record EBITDA and EPS. We bought back a record number of We successfully integrated 2 acquisitions and continued to grow our business through organic focus and investment. Perhaps a few comments on what we presently see in the markets and our view towards our 2020 objectives we presented last year at our Investor Day. I would be less than honest if I didn't say that I've been disappointed that we have not yet received an investment grade rating from the 2 dominant credit agencies. I feel we have done all that has been asked of us. In spite of this, will remain focused on maintaining a strong balance sheet. We should generate about 40% of free cash flow to EBITDA this year and will be prudent with our CapEx. As is outlined in Slide 13, we are projecting 2019 to be one of the strongest The first is the state of trade negotiations between the U. S. And China. While we remain optimistic that an agreement will be completed and is in the best interest of both parties, particularly China, no agreement being complete with a no agreement being completed will potentially further slow the Chinese economy and decrease consumer confidence globally. We presently see very low customer inventory and a high level inventory is refilled. Reach and 100 of 1,000,000,000 of dollars of tariffs are implemented, we will likely see products, particularly textiles and some durable goods moving from being assembled in China to other competing countries. We will who can will shift production elsewhere. It is more a question as to where products will be assembled, not if. Huntsman, like many like most in our industry, would fare much better with the trade deal done and uncertainty removed. However, we also earn a position to continue to supply a global customer base. The second variable yet to be determined is the outcome of a at negotiation. I think that a hard Brexit will cause short term delays in perhaps $15,000,000 of short term impact over 1 to 2 quarters as we pass along duties and customers and costs that will likely be born by our entire industry as there is no one polyurethane or world scale amines or maleic producer in the UK. While difficult to foresee the outcome, I don't think that we are disadvantaged or advantaged in any material way with our main product lines. The biggest unknown is overall consumer confidence. In short, the next few weeks will be very telling. At the present time, with the current forecast we have, our 2019 should be within 5% to 7% of our 2018 EBITDA and our free cash flow at about 40% conversion. Our largest CapEx project will be a new MDI splitter in North America. With the completion date ability as we will be able to split more MDI into a greater number of downstream products. As we look at the 2020 goals that we set out a year ago at our Investor Day, we remain confident in achieving our objectives of free cash flow and EBITDA in our polyurethanes division as we fully sell out the remainder of our Chinese MDI expansion. We also expect further downstream growth while also seeing improved operating reliability. These steps alone should generate close to timeframe. In our Performance Products division, over the next 18 months, we will see the benefit of additional capacity via debottleneck projects improved reliability and to further push downstream into our before mentioned routes to market This should add an additional $60,000,000 of opportunities that are unique to our business and performance products. As I look at the product pipeline and marketing efforts in our textile effects and advanced materials division, we remain equally optimistic of meeting our previously stated goals. While there remains potential short and long term obstacles, I'm confident that we have the right focus, balance sheet, and opportunities to continue to create further shareholder value. With that, operator, can you give instructions as to how to initiate the Q and Please be advised we'll be taking one question And your first question is from the line of Robert Koort of Goldman Sachs. Please go ahead. Thank you. Good morning. Good morning, Bob. You mentioned that there was some destocking across several regional supply chains in MDI and I think you gave some confidence about low customer inventories and maybe some recovery. I'm not sure I heard you say that about the U. S. So can you talk a little bit about your, so there's it's a lack of visibility in the March makes it challenging, but can you talk about what metrics you see that suggests that maybe the destocking has run its course and it's just waiting for a trigger for the restock? Yes, as we have Tony Hankins with us, I'm going to let him comment on, what we're seeing in polyurethanes. But as we look kind of across the board, we're seeing similar areas of where we're able to track inventory in North America, Europe as well as Asia, we see very low inventories across the board and, we see a lot of last minute ordering, which tells us that people are running on on very low inventories when they place an order and they say that they need and they're willing to even pay for an expedited delivery system to get to them. When you start seeing that in multiple customers in multiple areas, that tells you at least anecdotally to some degree, that people are running on proverbial fumes. Now Asia is a little bit tougher in China and particularly little bit tougher because typically people deal with multiple stages of distributors and brokers and so forth when you get into the Chinese market. And so you actually have more pockets of inventory. And I think there, we're seeing some of those similar trends. Tony, anything you'd add on polyurethanes? Very confident the destocking in Europe and particularly China is done. And we saw it was very dramatic in November December of last year. And I think that We've hit rock bottom in those two regions in terms of custom inventory. In Americas, we have much better visibility by virtue of 2 things. 1 is long term contracts that we have with some of our very large customers. And we work very closely with them to understand their forecasting pattern demand patterns to align production at a Geismar with their demand. And the other big advantage we have now is Demilec. Demilec gives us real end consumer visibility into those construction, particularly spray foam insulation markets where a lot of that growth is. And I think things are looking pretty good in the Americas. There's pockets of slowness due to weather, particularly these couple of winter storms, which have come through, which always hamper construction. But I think that overall that we have hit the bottom and that the supply demand position is very tight. It's not going to take much in increased demand to really, I think, accelerate growth again. So I think that we are, we're well poised at the moment for the recovery should confidence improve. Tony, can I just follow-up on that last point? About the supply and demand side. I mean, there seems to be a number of projects that are out there. You guys have talked about being disciplined with the entry of your increased output into the marketplace. But it looks like in light of maybe restrain demand this year for MDI at least relative to the last few years on these destocks that could get a little bit of a troubling supply demand balance. Could you talk maybe through specifically which projects out there you expect to have an impact on the market? I know Peter gave some operating rate guidance, but what are you seeing in terms of individual competition in your own plant ramp? Thanks. Well, I think the focal point for that question is China, Bob. And, we've seen a 10% price increase in China in the 1st part of this year I was talking to our team this morning. I went down to China for 10 days before Chinese New Year and I detect an increasing sense of confidence in our customers out there. I think our 10% price increase is going to hold. We've started to see orders come back more quickly than we expected in China. And I think there is real discipline at the moment. I think we've I'll step my neck out here and say, We hit the bottom in November, December last year that that price increase of 10% now is firmly in place and hopefully we'll see further progress in the next few months. So I think that it's not going to take an awful lot particularly in terms of those trade talks. And customers believe, I mean, rightly wrong that customers in China believe that either deal will be done and if a deal isn't done, then the tariffs will be kind of increase will be kicked down the road somewhat. And the increase from 10% to 25%, maybe several months away. And therefore, with inventories being as low as they are, they're starting to order and renew. And I think that will keep supply and demand in a good position. The only new capacity coming on globally this year is going to be in Germany later in the year. I don't have any visibility of that. That's something that maybe conventional will talk about on their call, but that's the only new extra capacity that we see coming on. So I think providing that the market grows and our expectation is it will continue to grow at twice GDP. So we're predicting 4% to 5% growth this year globally. Conditions will remain balanced, Bob. Great. Thanks for the help. Thank you. Your question is from the line of Kevin McCarthy of Vertical Research. Morning. This is Matt on for Kevin. Just looking at the $169,000,000 that you reported polyurethanes in the quarter, I'm just trying to square performance because price was down 7% and it's like an $85,000,000 headwind assuming 100% margins. And presumably volume and FX net should have been positive, but EBITDA was down $125,000,000. I know MTB is part of that raws were both up and down, but can you kind of explain away the differential there and why decrements were probably were so weak on the quarter? You're talking about comparison to a year ago? Yes. Yes. And I'd say, look, there are a number of numbers that that make that up. But let me just try to hit it in kind of 4 broad areas. The first as we pointed out, you know, there's a $40,000,000, elimination in the spike economics, that we would have seen of a year ago. $35,000,000 in, in the tight markets, that we've seen the elimination of that And excuse me, there's $85,000,000 in the spike that we pointed out a year ago. And in $35,000,000 in what we would say are tight market conditions. And then MTBE is about $30,000,000. And, from quarter to quarter. So, yeah, and then there's some said wins that are in there and some other costs that were in there as well. I think you hit kind of lower. But I think if you look at the $85,000,000 of spike, the $35,000,000 of pipe market conditions we pointed out that we feel are you're going to see that. I would say that tight market condition when you're somewhere close to that 90% capacity utilization. And you'll see that kind of across the board in the businesses, in large words, the spike was due, I think, to more of a one time anomaly of certain facilities not being able to operate for any number of reasons, be they maintenance or government regulations and so forth. And then the MTBE portion of that as well. Yes, sorry. Yes, this is Sean. Just to just to succinctly say what Peter just said. So you've got basically an 85 loss in the spike margin. We've seen, as Peter pointed out, that sort of quarterly tight market that's gone away, call it, 30 to 35. MTBE shifts quarter to quarter call it about $10,000,000. And then you've got a softer demand that we've talked about as it related to destocking. I think that kind of gets you there. Okay. I appreciate the operating leverage is probably lower on the destock. But, and then if you just look across all the businesses, how much do you believe volume headwind wise the destock was, just on a company level for 4Q? Sean and I are sitting here looking at each other and I I don't think we've calculated that. And, I'd venture a guess and it'd probably be pretty inaccurate. I think it's a combination. I mean, as I look at some of the big variables of this last year, the company we took in some $300,000,000 of higher headwinds in raw materials that would have had part of it. Part of that was seasonality, part of it was destocking. It's just a number we haven't calculated at this point. Fair enough. Thank you. Thank you. Your next question is from the line of Lawrence Alexander of Jefferies. Please go ahead. Hi, there are two questions. First, is the right way to parse your comments that, polyurethane segment margins probably troughed in Q4. And then secondly, can you give a sense for what your growth CapEx looks like say the next 3 years or next 5 years, like just how should we think about the overall pipeline of projects? Sure, Lawrence. Speaking about the growth CapEx, Let me just remind you that if we think about 2018, we spent about $305,000,000 on CapEx. Think about growth CapEx and that equation of around $100,000,000 to $125,000,000 in the last year. Generally speaking, we would say 175 $200,000,000 is maintenance CapEx. And so as we go forward 2019 adding this splitter in there, we're really going to be spending a couple of $100,000,000 of growth CapEx. And I think as you look at 2020, finishing that splitter, you're going to end similar to that number of a couple of $100,000,000 of growth CapEx. So I would say generally speaking, in the normal year, $175,000,000 kind of reliability maintenance and then about $125,000,000 to $150,000,000 would be growth. But next 2 years, a little higher on the growth with the splitter. I would say that as we think about, margins in MDI without getting into too much granularity here, I think that you'll kind of see a V shape, if you will. I think fourth quarter 1st quarter are going to look fairly similar as we said in the call. 1st quarter might have a little bit of destocking headwind in it compared to the fourth quarter. But I think the fourth quarter started out much stronger than it ended. And we are seeing first quarter will finish much stronger than it started. And so I think again, while the two numbers, may be fairly similar, I think you're going to see one directionally down in the fourth quarter and directionally up in the first quarter. Thank you. Thank you for your question. Your next question is from the line of Jessica Koscos of JP Morgan. Please go ahead. Thanks very much. I just want to be sure that I understand some of your statements about polyurethanes. Are you saying that your derivative profits in 2018 in fourth quarter were the same as your derivative profits in the fourth quarter of 2017. On a per ton basis? The margins are roughly the same. It's the volumes that are different. The volumes that are different. Okay. Yes. And so, again, the volumes are lower in the more recent quarter, but, singular percentage points. But I think that, again, this is something that I think that we kind of pride ourselves on that segment of the business at least is that typically volumes dictate margins and more commoditized products. And demand dictates margin and we feel the view that the margins that we have in this end of the business is certainly more stable, than what we see in many of our other ends of the business. So is your idea in 2019 that you'll earn more in your MDI derivatives? Than you did in your MDI derivatives in 2018? Assuming that we see an economy that doesn't collapse yes, that certainly would be our forecast. Thank you for your question. Your next question is from the line of Aleksey Yefremov of Nomura. Please go ahead. Good morning, everyone. Thank you. Just trying to, assess the polyurethanes EBITDA guidance for the full year. It seems like it's pointing to around 850,000,000 And then you're listing 3 different negatives on your bridge on Slide 13, this absence of spike in margin, on MTBE. So we got to about $730,000,000, if we include these negatives. So this implies $20,000,000 of growth in polyurethane. So sorry for long winded question, but where does this $120,000,000 come from primarily? Well, I think that it comes from really across the board. We're going to see a lot of it in China as we come in again, in China, we have a new plant that's coming on. We'll be adding not only will we be adding tonnage, but we'll be taking existing tonnage in China. We have excess splitting capacity and upgrading that as well. And so between the opportunity to increase productivity, to get more tonnage and to be able to upgrade that tonnage is where we're seeing that growth take place. Got it. And then just a little more details on the destock. It sounded like the destock itself was November, December. So if we kind of exclude the effects of seasonality, volumes in polyurethanes, should be better in the first quarter than fourth quarter. Is that a fair assessment? I think it's probably just too early to tell. I would certainly hope so, but I think until we get some sort of a view on March little bit better views than we have today. I'd again, I'm probably venturing there where I shouldn't go. Thank you. Your next question is from the line of Michael Sison of KeyBanc. Please go ahead. Just curious, given component MDI pricing was down a lot in the fourth quarter, how did that impact your differentiated MDI pricing and did it affect margins at all? I mean, meaning that if they're down, should your margins maybe expanded to some degree? No, I think when we look at it on an integrated pull through basis, they were very flat and the margins were pretty stable. So if we look at that on an integrated basis, it stays, it's very resilient. Okay, great. And then when you think about getting to your 2020 goals for polyurethanes, you'll be $150,000,000 away or so. Did you need any spike pricing to get there or is it all just growing the differentiated part of the business? No, we don't. And I may have somewhat clumsily tried to say that some as I I look at our 2020 goals, if I was, if I was, sitting in your position, I'd be saying from 2019 to a run rate in 2020, that's kind of a $1,600,000,000 plus EBITDA. What's my bridge that I need to get there? And how do I account for that? And I think that there's 2, I mean, if I look at textile effects, we're pretty much there. I look at Advanced Materials and I look at the ongoing expansion we see in aerospace and the projects, pipelines over, I feel that we're there, which leaves polyurethanes and performance products. I look at at polyurethanes, the leap of faith there is really, in 3 components. 1 would be selling out the remainder of the Chinese plant, think that that plant will be sold out by sometime around the end of this year, beginning of next year, depending on economic conditions and so forth. That should add about 50,000,000 ish or so. We think that there are reliability opportunities as last year through 3rd party errors and perhaps some improvement that we can do on our own. If we look at the plant just being able to operate our plant being able to operate on kind of their more traditional operating rates, which we've already taken steps to correct and to ameliorate those issues. We think there's about a $50,000,000 improvement there that will come about over the next year and a half. And then most importantly, our downstream growth, as we look at at Demilec as we look at the growth that continuing that we've seen in the bolt on acquisitions, there's about $80,000,000 ish, sort of an opportunity there in growth. So when you look at those 3 components, you're kind of coming up with $180,000,000 of off opportunity. And, and I think I said in my numbers, it's around 175 or so. But those are kind of we're not assuming From that, any spikes, we're not assuming any outages in the industry, we're not assuming any real economic uptick better than what we're seeing today of a very low single digit sort of GDP. And so I feel, again, I'm not going to say that easy, but I think it's doable. And our team has a lot of confidence behind that. Great. Thank you. Thank you. Thank you very much. Your next question is from the line of Matthew Blair of Tudor, Pickering, Holt. Please go ahead. Hey, good morning, everyone. The slides note that, your Advanced Materials segment saw some some restocking in autos in the 4th quarter. I think there's a pretty big Europe component here. Could you talk about what you're seeing in autos so far in Q1? Yeah. And I think that we're starting to see us come out of a lot of that auto business that we see in that end of the business is China and the EU kind of split between those 2. And I think that in both of those think that we've seen the bottom. Again, I don't want to say that a week or 2 of orders is going to be the basis of a turnaround, but we think we've seen the destocking that has taken place in that. And we think that there'll be some some opportunity there to gradually improve that. Great, great. And then in performance products, Malaic prices, they fell a little bit in the quarter, but they're still up about 10% year over year Any thoughts on why maleic is holding up relatively strong given the falling crude prices? Well, I think that we've seen that, that market end market, particularly, that's obviously centered into unsaturated polyester resin in the construction markets and so forth. I think that the industry is is fairly snug in Malayic and hydride. There's been no new capacity additions here in the last year or so. Snug market. And I think that the construction market and the remodels and so forth and a lot of the in a lot of the, recreational, motor homes and, boats and so forth that market has been surprisingly robust here, during the fourth quarter. And we've also had the advantage of some lower butane prices that we saw in the quarter that certainly helped the business as well. So a number of factors ranging from capacity utilization raw materials that are in our benefit to, I think a very strong and diverse customer base here that continues to make that one of the best performing businesses that we have. Thank you. Your next question is from the line of Jim Sheehan of SunTrust. Please go ahead. So with your outlook for polyurethanes, you've got continued weakness in the first quarter. And it looks like you're expecting a pretty good bounce back in the second half of the year if you're going to make the full year outlook. Can we assume that most of the recovery in polyurethanes is led by China where you've got the new plant wrapping up and also Europe? I think that as we look at that, I think it's going to be something that that's pretty broad across the board. I think that we saw the most severe destocking that took place in Asia. And it it feels that that's where possibly the biggest bounce would occur. I don't think that we were affected as much by the destocking in North America and so forth given the contracts and supply agreements that we have there that Tony mentioned earlier. And also to a lesser degree. But, I think that a China recovery somewhat in Europe from a restocking point of view. And I think that the U. S. Just kind of remains where it's been. The U. S. Market feels pretty solid for us. Great. And then also when I look at your valuation versus peers, it looks like you're still pretty discounted. What are your thoughts on share buybacks at these levels, are you going to be opportunistic or do you see more of a consistent buyback pattern through the year? Well, I think it's going to be, I know that sounds like something of a frustrating answer. I think it's going to be a combination of both. I mean, we're obviously locked out of the market some of the time when the windows close for trading, we'll put in plans to buy shares during that time. And we'll also look at opportunistic chances to be able to buy in our shares. But I do think that we need to make sure that we maintain a strong balance sheet. We remain cash on the balance sheet and times of economic uncertainty, cash is king more so than at other times. And, I want to make sure that we maintain a strong balance sheet before we go on any binges in buying in stock. I mean, this last quarter, obviously, in fourth quarter, we saw some of the low stock price. That's absolutely no brainer, in buying back stock. So I will just take it and we'll also be able to look at our stock price relative not just on an absolute basis, but also relative to our peers and where the macro industry is trading. So I know it's a long winded answer, but it's we need to take all those variables into account rather than just saying it an absolute number and an absolute amount of cash. Thank you. Your next question is from the line of Frank Mitsch of Fermium Research. Please go ahead. I wanted to follow-up on the new facility in China that you've been ramping up through the 3rd quarter and into the 4th quarter. And had mentioned that you're going to ramp it as demand dictates. Obviously, we saw pricing collapse in Q4. What do you think you may have exacerbated that decline? Where roughly where is that facility running today? And I know that you guys said that you wanted 100% by the end of the year. Can you give us some metrics as to how we should think about how that facility is ramping and for the balance of the year? Frank, good morning. This is Tony Hankins. We're running that facility today at around about 75%. And during the the last 3 months of last year, what we did was really do technology proving runs to prove its capability. And that plant lined out just great. I mean, we're capable of running that plant now for operating rates when we need to. But as things stand at the moment, that's about 75 percent. And I think that we introduced that product in a very select way in terms of the routes to market that we used. And that it did not contribute to the overall pressure on pricing. I think that was a result of pretty dramatic destocking and real concerns around the trade deal, the tariff deal in the U. S. So I think that plant's in great shape and it's ready to go if and when demand comes back to the course of the year. Yes, Frank, let's also remember that as we think about the Chinese market, you're looking at a market of just shy of about £6,000,000,000 of MDI consumption and moving that plant in the 4th quarter, an additional 10%, 15% operating rate. I it's a symbol full of product compared to what would, I think, really affect that market. That's very helpful. And, I'd be remiss if I didn't ask the obligatory question on Venator, obviously, suggested that you guys are going to be prudent. What does that suggest about patients? And you talked about possibly selling it off to a single party. Where do we stand on that? What are your thoughts as to when you may be able to monetize that investment? Oh, I think that the Venator stocks tremendously undervalued today. And I think that we're just going to continue to look at our options. And now that we've deconsolidated it, don't want to say that we're not in any hurry, but at the same time, I think that there's a tremendous amount of upside opportunity there. We're not going to try to get the absolute high dollar, but I think I certainly think that we need to be looking at something that's materially higher than where it is today. Thank you very much. Thank you for your question. Your next question is from the line of Hassan Ahmed of Alembic Global. Please go ahead. Good morning, Peter. Good morning. Peter, I'm just trying to get a handle on the Performance Products side of the business. Obviously, 2017 was a bit of a quirky year. The port matches outage, hurricanes and the like. And you did roughly around 14% EBITDA margins that year. Nice jump up in 2018. EBITDA went up, call it, around $70,000,000 EBITDA margins at around 15.5%. Just try and obviously, 2018 was also a fairly volatile year in terms of raw material prices. So as we look at 'nineteen, just trying to get a sense of how we should be thinking about be it run rate EBITDA, EBITDA margins or the like in the business? Well, again, Honestly, it's very early in the year to be able to try to forecast, where we're going to be there. But I think that we'll probably see growth opportunities in the downstream businesses, surfactants, amines and maleic. We'll probably see more pressure on the up stream side of the business, the ethylene, ethylene oxide and glycols. And I would remind you that a lot of that sold on tolling basis So we're not going to be whipsawed greatly here by, by glycol margins, but as I look at that, I think that the 2, will I think that the benefits that we'll see in the downstream business will more than offset any weakness that we see in the upstream business. And we ought to continue to see improvement in that business. And, I'd say it's just too early in the year to say what sort of improvement that we'll see in that business, but I did mention earlier that we see that there's about $60,000,000 of kind of self help opportunities And, that we have in that business that include, some capacity improvements We see more tonnage being shifted from commodity applications into downstream specialty. Or differentiated applications. And, we see an opportunity to differentiate ourselves a bit more in pricing in that division as well. And so when I look kind of at that $60,000,000 improvement that we see now and and through, 2020. I think it's probably safe to kind of apply that across the board, as we see that. Understood. Now changing gears a bit, on the China side of things, in Q4 2017, the global industry kind of benefited from partly the rationing of natural gas because of the cold winter. But also fairly strict environmental related curtailments in production. So it seems obviously the whole winter natural gas rationing isn't sort of currently happening, but there's a lot of noise around some of that curtailed environmental curtailment related capacity coming back online. So what's your view about that? I don't see and I'll ask Tony here to comment on MDI, but I'm not aware of any large scale MDI facilities that are being curtailed right now production wise because of environmental issues. I think that there certainly are a lower number of projects or excuse me, a lower number of companies that we see that are impacted through environmental and enforcements and so forth. Most of those probably are occurring in textile effects. But again, I'd say that that impact is less this year. Than in previous years. And Tony, do you see anything on MDI side? No. Nothing in MDI because all the facilities on MDI relative to new. So they meet the high standards environmental standards, etcetera. On our PO business, particularly our joint venture, in Nanjing, we continue to benefit from those environmental reductions in propylene oxide. I think if there isn't a resolution to the tariffs and, sentiment worsens as a result of that, then I think the lease off on the I consult about bringing people back to work and jobs. And I think that that's what it hinges on. But at the moment, we're seeing still very good demand on the basis of the improvements that Chinese are driving on the economy. Perfect. Operator, why don't we why don't we take one more question? I know we've gone over an hour and why don't we take one more question here and there are other people in line, but We'll certainly remain available if anybody wants to call and follow-up calls and so forth throughout the day. Okay. Thank you. Your final question is from P. J. Juvekar Citi. Please go ahead. Yes, good morning and thank you for taking my question. Peter, a quick question on ADMAT. In that business, earnings held up quite well despite some slowdown in China. And I know that you are not in BLR But the bulk epoxy pricing has been weak. Do you expect any impact of that going forward in that business? I think near term, you might see BLR prices strengthened just a little bit, which might be a little bit of a headwind, to us a couple million bucks. But we buy DLR in China and, and in the U. S. As well. And so that might be a little bit of a headwind, but I don't see a whole lot of strength in BLR. Just a quick question for Sean. Sean, I know you had some valuation allowances that you released in 2018, what is the impact on tax rate in 2019? Both book and So the way we think about that is we hit about 19% this year. We said that we'd guide up to 22% to 24% next year. That valuation release impacts us on an adjusted effective tax rate by about a couple of percent. From a cash tax basis, if you're looking into 2019, think of about 14% of EBITDA is kind of where we throw cash taxes. Okay. TJ, thank you very much. We'll now turn the call over to Ivan Makuza for the closing remarks. Thank you, sir. Great. Thank you for joining us on our call. We look forward to catching up with you next quarter. And, if you have any follow-up questions, feel free to give investor relations a call. Through the rest of the week. Thank you. Thank you for participating in today's conference, everyone. This concludes our presentation. You may now disconnect. Good day.