Earnings Call: Q3 2018

Oct 30, 2018

Good day, and welcome to the Q3 2018 Huntsman Corporation Earnings Conference Call hosted by Ivan Marcus. My name is Deborah, and I'm your event manager. During the presentation your lines remain on listen only. I would like to advise all parties that the conference is being recorded for replay purposes. And now I'll hand over to Ivan. Thank you Ivan. Please go ahead. Thank you, Deborah, and good morning, everyone. I am Ivan Marcaruso, Huntsman Corporation's Vice President of Investor Relations. Welcome to Huntsman's third quarter 2018 earnings call. Joining us on the call are Peter Huntsman, Chairman, President and CEO Sean Douglas, Executive Vice President and CFO and Tony Hankins, President of our Polyurethanes. This morning, before the market opened, we released our earnings for the third 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, we may make statements about our projections or expectations for the future. All such statements are forward looking statements and While they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the actors 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 and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website, huntsman.com. In our earnings release this morning, we reported 3rd quarter 2018 revenue of $2,400,000,000 adjusted EBITDA of $374,000,000 and adjusted earnings of $0.84 per diluted share. I will now turn the call over to Peter Huntsman, President and CEO. Thank you, Ivan. Good morning, everyone. Thank you for taking the time to join us this morning. Let's turn to Slide number 3. Adjusted EBITDA for our polyurethanes division for the 3rd quarter was $247,000,000 versus $245,000,000 of a year ago. Our MDI Urethanes business which includes our MDI, polyols, propylene oxide and formulated systems businesses recorded adjusted EBITDA of $242,000,000. This compares with $254,000,000 of a year ago, $246,000,000 for the previous quarter. It is important to emphasize that our MDI Urethanes EBITDA is down just 5% versus the prior year. I would remind you that earlier this year, we pointed out that we had a $40,000,000, what we referred to at the time is a short term spike in margins. The third quarter of last year. We stated at the time that this was expected to last until the middle of 2018. We estimate that perhaps $15,000,000 of this spike is remaining in Q3 of this year. We do not expect any of these spike margins in the fourth quarter. As we compare the state of our third quarter Urethanes performance to a year ago, we have absorbed $25,000,000 less in short term spike margins. We've absorbed an additional estimated $20,000,000 impact by an unplanned outage at our Rotterdam Netherlands MDI facility that was initiated by a 3rd party supplier. This outage was operationally fully recovered in the quarter. We absorbed about $40,000,000 of feedstock price increases and we benefited by about $20,000,000 from the operation of our recent expansion of our China was offset by our of the absorbed shock of the absorb loss of spike margins. Our downstream margins remained flat and unaffected as we were able to recoup our raw material price increases. This is strong evidence of our unique downstream business and the strength and resilience of our customer base. Increasing capacity at our China facility. This plant is fully capable of running at full capacity and we will be bringing supply into the market as demand dictates. Let's turn to Slide number 4. Fully consistent with our long standing strategy, we continue to see solid growth in our downstream differentiated and formulated businesses. In third quarter, we saw 6 percent year over year growth in volumes within our differentiated systems business. Let me remind you that for the first time, we now have a Earlier this year, we completed the acquisition of Demilec, a downstream Urethanes spray foam manufacturer, in the high growth end market pro form a for the unplanned third quarter Rotterdam outage and the acquisition of Demilec our differentiated downstream business grew a healthy 12% year over year. Looking at polyurethanes regionally, our Americas volumes increased 17%. Our recent acquisition of Demilec added about 6% to our Americas volumes. Volumes in this region were primarily driven by our composite wood products, insulation, and elastomer section. With the startup of our new Chinese MDI capacity, we are shipping less MDI from the U S to Asia helping to feed our growing North American customer base. While we are seeing some softer order patterns in insulation versus the prior year, we expect that this region overall will continue to see growth. Margins in North America were stable. The startup of our China expansion has fueled solid growth in Asia. This region continues to benefit from insulation growth into large scale infrastructure projects, such as district central heating and new applications. The adhesive coatings and elastomers and footwear markets in the region also continue to be significant contributors to our growth. Our MDI systems into automotive also increased 7% driven by high end automotive and continued trends around substitution. We have recently seen some destocking in the supply chain in our China region, largely driven by the knock on effects from uncertainty around trade and some general softness in the Chinese economy. Our downstream margins in China were stable. Stoli due to the temporary and now resolve production issues in Rotterdam, we were capacity ranked in Europe and experienced a negative variation in volumes over last year. Absent the production issues in Europe, we would have seen a modest growth in the region similar to China, within certain product markets such as insulation, we are currently seeing customers taking a more cautious approach to inventory management by destocking. Our over our downstream margins in Europe were stable. Over the past year, we have been transparent in pointing out what we believe is a short term spike in commodity component MDI prices impacting a subset of our business in Asia and Europe. As was anticipated and shared with you in our prior quarterly earnings calls, We saw these spike margins decline in both Asia and Europe. As compared to the third quarter a year ago, we believe that EBITDA margins are fully eliminated. As shown in the upper half of Slide 4, the fall in our Chinese and to a lesser extent, our European component MDI pricing is something we've been telling the market now for about a year. Let me remind you that given our core downstream differentiated strategy. Overall, Asia component volumes make up about 9% of our total global MDI volume. Let's turn to Slide focusing on and growing our unique downstream differentiated and formulated systems business, our core base differentiated businesses remain stable. The graph lines reflect the margins experienced by region within our component and differentiated urethane portfolios. A significant majority of our business is down strength and has not been impacted by the short term spike in margins. Notice the difference between the blue and the red lines. Looking forward over the short term, given our recent expansion of our Chinese facility, we will be exposed a bit more our Chinese business downstream as we have done in Europe and in the Americas. Regarding our China expansion, we intentionally outfitted our MDI splitter in such a way as to maximize the output of downstream for downstream growth. This will prove to be a benefit as we transition our business in China further downstream. At the present time, we have 365,000 kilotons of Chinese crude MDI capacity and nearly 400,000 kilotons of MDI splitter capacity. In other words, we have in place today the ability to derivatize our MDI in China similar to Europe and North America and will do so as markets continue to develop. Longer term, we will see less Asian commodity, polymeric styles as our downstream Asian markets continue to grow. Strong long term fundamentals of the MDI market. While there has been a recent announcement by another party to construct a world scale site in North America by 2024, this does not materially change the tight long term fundamentals of the MDI industry. Over the long term, we expect industry capacity utilization rates to remain balanced as new planned supply enters the market from time to time, industry utilization rates may ebb and flow over the short term, depending further on the rate of global demand and any unplanned possible supply disruptions. Our outlook for average annual global demand growth has not changed as we anticipate future growth at about 6 400,000 kilotons annually, which is the equivalency of a new world scale plant each year. Even assuming all the debottlenecks and brownfield capacity additions that have been announced to date come on exactly on time and at full capacity something that's never had by the way, we believe that capacity will be growing at about 5% through 2022. Therefore, long term supply industry supply demand dynamics should remain snug as we good visibility and do not see greenfield capacity entering the market for many years to come. Irrespective of this favorable long term view the more downstream we move, the less relevant these fundamentals are to our unique integrated portfolio. Our downstream footprint is unique and that we have 29 downstream facilities located in 20 different countries. In addition to organic growth attractive bolt on acquisitions we have made over the years. We have been successful in commercially and geographically scaling up these acquisitions to achieve enhanced synergies results in meaningful growth and value creation. In total, the past 11 completed acquisitions currently count for approximately 20% of that these acquisitions contributed just 2 years ago in 2016. We're able to grow these businesses stand the take new technologies into different markets and globalizing the businesses. Looking forward to the fourth quarter, we expect the typical seasonality that we see in this business likely exaggerated a bit given that we are currently seeing customers throughout the supply chain destock and be more cautious given the backdrop around global trades and a softer picture of growth in China. This will likely offset the incremental benefits of our new China expansion in the fourth quarter. We would expect the fourth quarter for MDI Urethanes to be modestly less than Lastly, our MTBE business improved versus last year and reported EBITDA of $5,000,000 versus an EBITDA loss of $9,000,000 a year ago. Heading into a seasonally softer quarter, we currently expect MTBE to be about break even this next quarter. We do expect margins in our downstream Urethanes businesses to remain stable. Let's turn to Slide number 6. The Performance Products segment reported EBITDA of $93,000,000, which is well above last year's EBITDA of $63,000,000 when this business was negatively impacted by approximately $35,000,000 due to Hurricane Harvey. We experienced solid EBITDA growth year over year in our amines and maleic businesses. Despite this growth, performance products fell short of expectations, in part due to a spike in ethane costs. This segment remains on track to show substantial growth this year, the key markets that we highlighted at our recent Investor Day, such as gas treating, oilfield chemicals, and high performance lubricants continue to be solid contributors to growth, which we expect to continue for the foreseeable future. We remain focused on moving our downstream derivatives into more differentiated businesses and applications. The fourth quarter tends to be seasonally weak a seasonally weaker quarter. We are still expecting year on year improvements in our remains and Malayic and hydride and steady performance in our surfactants. This will be offset by lower upstream margins due to ethane costs. Would expect results to be similar to last year's fourth quarter when excluding certain one time events that impacted this business last year by approximately $27,000,000. Let's turn to Slide 7. Our Advanced Materials business reported adjusted EBITDA of $56,000,000 in line with last year's EBITDA as we invested and next generation technology to drive future growth. Our specialty volumes increased by 2% versus prior year despite some weakness in electronics, largely driven by a slowdown in the Chinese auto market This business has sustained and recouped approximately $20,000,000 of raw material cost increases year to date over the prior that remain a headwind for this business. The continued expansion in volumes in our specialty business has largely come from growth in Aerospace DIY And Industrial Adhesives, as well as our coatings and construction business. This consistent specialty growth is Folio and offer medium and long term opportunities to expand into new markets with new and existing customers. Lightweighting, energy efficiency and material substitution trends will remain long term drivers of growth for this segment. We are seeing softer order patterns from some customers, specifically in China and automotive markets. We believe these customers may be adjusting inventory and reaction to lower end use demand and uncertainties around trade. These softer order patterns will likely add to the seasonally, that will likely add to the seasonality that this business typically sees in the fourth quarter. Taking this into account, we expect our 4th quarter EBITDA to be similar to last year's. I expect our full year EBITDA to be stronger than ever in this business group. Reported EBITDA of $25,000,000, up 32% versus the prior year. This is a very solid EBITDA growth in spite of an overall decline in volume of 4 seen overall volumes decline. Total volumes declined primarily due to a deselection of some non differentiated business and raw materials constraint in China due to ongoing regulatory enforcement and some slower customer order patterns in certain regions and markets. The business remains focused on growing its more specialty products, which were up 9% in the third quarter versus the prior year and 10% for the year to date period. Long term macro trends remain intact relating to increased environmental and sustainability standards in both chemicals and dyes. The continued move downstream in our specialty and differentiated portfolio has enabled this business to price competitively and to offset the significant increase in raw material costs experienced this year. The improved EBITDA in the quarter versus the prior year marks the 12th straight quarter of improvement and keeps it firmly on pace to achieve its 2020 goals. We continue to see steady margin growth in this business despite some softer overall demand and higher raw material costs, we expect our fourth quarter EBITDA to be similar to 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 9. In summary, EBITDA year over year increased by $34,000,000. The benefit of approximately $50,000,000 of not experiencing by the anticipated reduction in MDI spike margins of $25,000,000 and impact of certain outages of approximately $25,000,000. Taking the net effect of this into consideration, percent year over year. The volume expansion in China, along with additional volume growth, contributed about variable margins improved just under $25,000,000. This is in spite of over $120,000,000 of direct cost increases year over year. Versus the prior year third quarter, MDI Urethanes faced higher direct costs of about $40,000,000 advanced materials of approximately $12,000,000 and textile effects of about $5,000,000. Performance Products saw higher butane and ethane costs of approximately $15,000,000. I wish to emphasize the downstream margins, representing the lion's share of our business, were stable. Fixed costs year over year are higher in the third quarter, which includes the fixed cost of our China expansion and recent bolt on acquisitions. The impact of currency year over year is minimal. Turning to Slide 10. We continue to generate strong free cash flow consistently. Our free cash flow for We continue to manage our working capital efficiently. While our overall working capital metrics for the third quarter were similar to the prior year, we did see an increase in working capital of approximately $86,000,000. This is largely the result of For the last 12 month period, our free cash flow conversion was approximately 42%. As previously shared, we expect free cash flow for the full year 2018 to be between $550,000,000 625,000,000 dollars. We also expect our future annual free cash flow to continue to approximate or exceed 40% of adjusted EBITDA. We ended the quarter with net We remain committed to being an investment grade company. We expect to spend between $300,000,00320,000,000 capital expenditures for 2018. The 4th quarter is traditionally our highest CapEx spend of the year. As we shared on prior earnings calls, the category of maintenance and other can be lumpy quarter to quarter due to timing of various accruals and maintenance projects. For the full meaningful use of cash on multi year turnarounds occurring in 2018. Our 3rd quarter adjusted effective tax rate was 20%. We expect that our 2018 adjusted effective tax rate will be between 19% 21%. And then our long term adjusted effective tax rate will be approximately between 23% 25%. As discussed in the prior quarter earnings call, Of book taxes, we will realize effective 2019 as a result of a portion of certain valuation allowances that we released in $29.67. To date, we have repurchased $175,000,000 of shares or 5.9000000 shares under our $1,000,000,000 multi year share repurchase authorization. We were limited in the 3rd quarter from repurchasing more shares given a winding up of a 10b5 plan and being subject to blackout. Statistically and in a prudent manner under our board authorized program. We continue to hold our 53% interest in Venator, as held for sale on our balance sheet. We have been actively marketing this holding. During the third quarter, We impaired the value of carrying amounts of assets and liabilities held for sale and the amount of cumulative other comprehensive income recorded in equity related to Venator. The impact of this valuation allowance is reflected in discontinued operations. In conclusion, of my part, Our portfolio of businesses demonstrated a solid performance in the third quarter showing strong growth in EBITDA of 10%. Our LTM EBITDA margin is 17%. Our LTM free cash flow conversion is 42% our net leverage we shared with you at our May 2018 Investor Day. Peter, back to you. Thanks, Sean. Let's turn to Slide number 11. In summary, our company continues to expand our downstream business and meet our growth, EBITDA and free cash flow targets. In spite of a few unplanned hiccups experienced in the third quarter on a pro form a basis, we reported a solid EBITDA growth year over year of 10%. Our strategy to continually business is working and taking the volatility out of our earnings. We continue to demonstrate the resiliency of our unique Eurothanes downstream differentiated portfolio in the midst of volatile prices and the more commodity end of component MDI products. Overall core differentiated business is showing stability and consistent growth. We're on target to deliver on our 2020 goals as shared in our Investor Day presentations. This downstream focus has also shown improvements in our Advanced Materials divisions where we are on course to have a record year. We're also on track to have solid gains over the previous year in our amines Malaycan hydride surfactants and textile effects. We understand that there are uncertainties around global trays and some slowing trends in certain regions that are causing volatility in the produce in the quarters ahead. However, I remain optimistic about the long term fundamentals for global growth. We remain focused on what we can control. We've been specifically transparent around our Eurothanes business, especially given this recent year's extra tight industry dynamics. We have tried to provide you with directional guidance the best we can. I don't share the negative views of a few analysts and pundits regarding a bleak long term outlook of MDI. And I deeply feel that the market still does not adequately understand the unique nature of our more downstream urethane portfolio. Should our business will be impacted to some degree by a global slowdown in market demand and in the face of a negative macroeconomic force. However, we believe that we have never been in a better position to weather an economic slowdown if and when it were to happen. Our balance sheet has never been stronger. Our cash flow continues to be robust which puts us in a position to take advantage of opportunities that may arise to further grow our business, while we also being opportunistic in our share buyback program. During this past quarter, we purchased one point 3,000,000 shares for $37,000,000. This amount was much lower than I would have liked to see due to us being blacked out for much of the quarter reasons for the blackout include our own discussions with multiple parties regarding the potential sale of our shares in Venator. We continue to explore all options for monetizing our Venator shares and are actively marketing our current stake. We will update the market when and if there is something new to announce. As Sean pointed out, we remain solidly within investment grade credit metrics. We role and are committed to maintaining an investment grade portfolio. Over the years, I've refrained from ever commenting on our share price. However, as I look at the remainder of the year, we're on track to being within 1% of $1,500,000,000 of EBITDA. By far, our best performance ever. We remain on track to generate about 40% free cash flow to EBITDA. We're is that our 2020 targets that we laid out at our Investor Day this past May. We will remain focused within reason on monetizing our position in Venator and when realized and tend to dedicate a meaningful portion of those proceeds to our share repurchase program. Absent a lasting change in macroeconomic conditions, we remain on pace to achieve our 2020 EBITDA target of greater than $1,600,000,000. Our expectations of generating more than $1,700,000,000 in free cash flow is also unchanged and on target. Our free cash flow will be used in a balanced and prudent way to create shareholder value share repurchase program, supporting a competitive dividend yield, as well as growing our business, both organically and through sensible acquisitions. Given where we are, the changes over the past few years and where we are going, I see a massive disconnect between our performance and our share price. Our company has never been in a better position to create shareholder value. As we now transition into our Q and A session, I've asked Mr. Tony Hankins to join us. Tony is the Chief Executive Officer of our Asian business, as well as President of our Polyurethanes division. Given the industry focus on both Asia and our polyurethane business, Tony will be able to contribute some of his inside views during the Q and A. Operator, will you explain the procedures for Q And A then open the line for any questions? Thank you. You. But the first one does come from Kevin McCarthy from Vertical Research Partners. Thank you Kevin, you're live in the call. Yes, good morning. A few questions on the polyurethane segment. First, you indicated on slide 3 that local price declined 2% on a quarter to quarter basis. Just wondering if you could comment on on what the breakdown might be in terms of component pricing versus your differentiated systems and in particular, whether the latter changed appreciably? Kevin, good morning. Let me try to answer that in our component businesses in China declined the component price compliant, Mary declined 25%. And in Europe, it was around 10% or 15%. But our differentiated downstream businesses, those margins have been strong and stable. We haven't seen any weakening in those areas of our business. They remain very resilient to the current slowdown in some areas of the market. Great. And then second question, Peter, would you comment on where we Dan with Venator. I heard you referenced the valuation allowance and efforts to dispose of that stake. Perhaps you could provide a little bit more color around the strategic thinking there. And from an accounting point of view, if you do not enter into a transaction, how long can you maintain the current accounting an income statement and balance sheet perspective, or can that continue indefinitely? Well, it cannot continue indefinitely. And I'll let Sean comment on that, but I would just say in the meantime that we have been in active negotiations and we continue to be in active negotiations and we consider that this notice that the market, that the market now knows as much as we know about what we are doing. Should we get to a point where we are, advanced to the point where, the window is closed, if you will, and we can no longer buy, shares we'll proceed up to that point. But, at this point, we continue to be in discussions with multiple parties And as we've said all along, it is the intention of Huntsman, to be able to sell our shares in Venetcor in a time when it of our choosing when it makes sense. Thank you very much. Kevin, I'll just add to that that certainly we're in compliance with the accounting rules, to be able to keep that on the balance sheet as a held for sale at the moment. And clearly, part of that is we are currently actively marketing that piece for a reasonable price. And, should that ever change when we not be successful there, just remind you that to deconsolidate that entity would only require a disposition of 4%. Understood. I appreciate the color there. Okay. Thank you. And the next one is from Lawrence Alexander from Jefferies. Thank you, Lawrence. You're live in the call. Good morning. I guess, two questions. First, can you characterize, I mean, you were talking a few times about destocking. Can you drives the severity of destocking, that you're seeing? And maybe just sort of put in perspective as to how whether you've had any indications from customers about timing of when this might end or when things might rebalance in early next year? Kevin, yeah, this is Peter. Let me just kind of take us on a macro basis. Antonio has anything to add from a polyurethanes basis. We need to remember that when we talk about, what I would call is supply chain dislocation. We are seeing products in China in particular that are being hit possibly with tariffs here starting at the 1st the year. Take something like appliances or furniture, where we are seeing manufacturing move from China to other regions of the world or even into North America. And so we're seeing a disruption, if you will, in the inventory build that typically would be certain regions. And I say this because it's not just in polyurethanes, we're also seeing performance products in other areas. And I think that the market perhaps might be missing a little bit is just how much of a supply chain disruption or dislocation there is that's going on. And it's not that we're necessarily buying fewer appliances in North America, or furniture in North America. Where is it coming from? Who are the suppliers? And where is it being manufactured? And so, just because of the tariffs and the nature of that, I think that you're going to see some inventory decrease in China. Let's not read that in the world's coming to an end because at the same time, we're also seeing some strengthening taking place in certain other areas. I'd say North America, as we look at some of the the furniture footwear, spray foam, some of what we're seeing in North America is directly affecting somewhat seeing in Europe and Ace and footwear and so forth. Some of the high end automobiles and so forth are actually increasing in the face of some of the decreases that we're seeing in Asia. So I hope that we're not reading too much when we talk about a specific region of the world. I think we're seeing more of a dislocation perhaps than we would be used to. Tony, anything in P. You want to add to that? Yes. Thank you, Peter. Lawrence, good morning. I think the destocking has been most pronounced in China. And it's been in those areas of the market that are most exposed to tariffs, things like footwear, for example, where customers are waiting to see whether the 25 percent tariff will come in at the end of the year, knowing that if they ship now, they're going to be on the wrong end of that. Time scale, but some of that is starting to be offshored. And we've recently opened a new facility in in Vietnam, for example. So I think that if the tariff was get more severe, we're well positioned to capture that business as it moves to other manufacturing locations in Asia. And if I look at our automotive business in China, that's been very strong. We've been continuing to see double digit growth into the high end of automotive in China. And I haven't seen any destocking at all in that segment of the market. So it seems to be very focused on those areas most exposed to tariffs going forward. And then I guess just secondly, just thinking about the fly up effect this year and then the bridge for next year, Peter, if I understood your comments properly, it sounds like it's pretty difficult for polyurethanes EBITDA to be below $1,000,000,000 in 20.19? In 2018? No, in 2019. Well, yeah, I would say, I'd really feel more comfortable giving that that view on the next call when we're kind of into the we're probably announcing our fourth quarter. At that point, we'll be into 2019. I think we'll have a much better view there, Lawrence. Am I personally seeing any trends that would keep me awake? At night for 2019? No. But again, we're still in 2018, so it's probably too early to give any accurate assessment on that. Okay. Thanks. I do think, Lawrence, forgive me for interrupting. I do think that it's important when we talk about our margins in our downstream differentiated businesses, particularly in Asia, but globally, more specifically, that we're not seeing an erosion in those margins. That doesn't mean that we're not going to see an erosion in the demand for those products. But when we look at the overall resiliency and the pricing and the pricing that we've been able to achieve in those products, I think that's where we're seeing the real strength coming through on that that downstream side. Thank you so much. And now we have Mike Sisson from KeyBanc. Thank you, Mike. You're live in the call. Hey, guys. I thought you had a nice quarter. In terms of polyurethanes, when you think about your 2020 goals, Peter, you I think you said that you're pretty confident that, 2018 will be pretty close. Maybe just qualitatively, where do you see growth in urethanes in 2019? Well, I think that we'll continue to see it downstream. That's where our big focus will be. As I look at perhaps one of our biggest markets that we see here in the Americas where we see a lot of the expansion that's taking place in our Chinese facility, we'll see more tonnage coming into the U. S. So I think that we'll be okay over the course of the next year. So on the MDI that we will need to satisfy the North American market. But rather than focused on more Paul American crude MDI coming out of North America, we'll be looking at capital projects and very expansion off opportunities over the coming quarters as to how do we further expand our splitting in our downstream derivative businesses in North America? This is where we're going continue to see, our growth will continue to see better than GDP growth in Europe and our downstream applications. And as I said in my call, We've got 365,000 tons of crude MDI capacity in China. We've got more than that. So I mean, in theory, once we build out our MDI downstream facilities in, in, in Asia, we'll actually have the capacity to buy food MDI from other MDI producers. And derivatize that starting at our splitters and derivatizing it from that point forward. So I see it really on an across the board basis. Okay, great. And then when you think about your balance sheets in pretty good shape, any update on how the outlook for acquisitions for downstream MDI assets are as you enter the 4th quarter? Well, I think that is there there are plenty of opportunities that are out there and there are plenty of opportunities that we continue to look at. I just want to make sure that as we look at the pricing and the values, of these that we're not getting caught up and that we have to do something right now. I think that valuations, continue to be high. I think that they obviously have have been coming down in the last quarter. But I mean, as I look at our overall balance sheet strength and as I look at the overall profile of the company, remarkable to note that the last term the last time that our stock was trading at this price about 2 years ago and where we are today I mean, I just tick off, we've got a $1,700,000,000 out of Venator, a $1,000,000,000 of free cash flow from our operations. We've seen our debt reduced by nearly 50%. We've grown our EBITDA by 63%. So it's not just the balance sheet as to how much debt we've been able to generate, but also the vitality of the downstream businesses that we've never had before. When I look at those opportunities and I look at the opportunities to continue to move further downstream, I see that as being a better opportunity prices are probably only going to get better, for acquisition opportunities. And integration and globalization of those will remain intact. Great. Thank you. Thank you very much. And the next one from Hassan Ahmed, from Alembic Global. Good morning, Peter. I wanted to switch back to the polyurethane side. Going over your Analyst Day presentation, if I have my numbers, right? It seems that around 17% of your polyurethane sales come from autos. Obviously, the auto markets, new builds have been a bit choppy, particularly in Asia. So I just wanted to get a sense of, in this quarter, what sort of volumes or volume declines did you guys see from the auto end market within polyurethanes? Meaning, were they in line with the auto bill side of things? Were they not as badly hurt, you know, any sense around that? Well, I'm going to let Tony comment on that, but as we think of auto, let's think about it regionally and think about it geographically. And think about high end auto versus a more commoditized lower end auto. And let's think of new builds and let's think of product substitution. So kind of there are 4 or 5 different categories that make up the reasons why there would be that, that growth or lack thereof. Tony, as we look at the automotive sectors around the world? Yes, I think, Hassane, the mass market automotive is clearly stalled. And we saw an announcement yesterday in China whereby the auto tax has been cut from 10% to 5% to try and regenerate that business. That's not where we're positioned. We're positioned in the higher end automotive, higher end seating dashboards steering wheel sound insulation. And that continues to grow very well. In China, we saw double digit growth in quarter 3. We continue to see growth in North America. Europe is growing slightly. And overall, we continue to see very, very good growth in the automotive in those segments that we are focusing on, which is high end, high performance, highly formulated systems that go into creating special effects in those cars. So I'm feeling pretty good about automotive as we sit at the moment. Understood, understood. Very helpful. And as a follow-up, maybe a question directed to Sean. Sean, obviously, we saw some weakening in emerging markets currencies and the like. Did I hear you correctly that you said that you really didn't get much of a hit from FX in Q3? That's a fair statement Hassan. There was a modest effect from some of those currencies talking about, we can talk about the Indian currency, we can talk about Brazilian real in places like that. But generally speaking, the lion's share of our exposure, have been, in the euro and on China. In China, we've seen a little bit of an impact as well. But overall, we hedge a fair amount of what we do And overall net net, we didn't see much you very much. And the next one now from Robert Koort from Goldman Sachs. Sort of characterize maybe having a different view than some on the MDI markets. So maybe you or Tony could talk a little bit about the differentiated process route. In other words, everybody's got some crude MDI and then you split it some component pieces that you have to make. But you then take some of the bulk of the rest of the output from that splitter and convert it into differentiated products. Do all your competitors have the same sort of setup? Should we expect that BSF or Covestro, Wawa, Sudara, all have that same, sort of proportion or what is it that's unique to you that maybe insulates you, protects you from that more, I guess, uminess view that some observers might have on the MDI markets? So, Bob, good morning, it's Tony. Let me try and and answer that question. In terms of the growth, as you go downstream, the degree of substitution of growth gets higher and higher because those formulated systems are primarily displacing on the materials in those end markets that we are that we're focusing on. Therefore, at the component end, that's primarily GDP driven, but if it go downstream, it's a combination of GDP, and substitution. I think that is what's what's giving us the continued strong growth that we're seeing in those downstream markets because it's more than just economic growth. In terms of our downstream technology, yes, over the last 5 to 6 years, we have invested heavily in process technology, in splitting in the production of variance and derivatives, because that's been our strategy. We have wanted to convert more and more of our crude MDI to those specialty products that go into those formulations that drive those effects. And I think as I look across particularly in China and in Europe, that technology now is extremely well positioned to exploit moved downstream. And as we make more built on acquisitions as we build more own built systems houses such as we're building in in Northern China, in Taiwan, we're just open in Vietnam. Those specialty downstream MDI products will be consumed captively into those higher growth markets. So I think that whole value chain, that whole chemical engineering process now is going to be really well aligned for our business. I think adding on to that, Bob, it's just important to note that when you start on that downstream journey, it's not making the molecules. It's also building the relationships, specking your product in and getting the pricing in place remember 2 or 3 quarters ago, we were saying that we're not going to see as much margin as some of our competitors on the run up of component prices, because we were electing to lock in prices on a more stable basis rather than enjoy the short term run up. When we look at some of the downstream businesses like spray foam and footwear, these are areas that are very important to us. We look at some of the upstream, not that they're customers that aren't important to us, but Asian appliances for us, when we're asked about this, this is less than than 1% of our Asian business, which is 20%, seventeen percent of our overall business. So it's a fraction of 1% when we talk about Asian appliances and Huntsman materials going into Asian appliances, low end automotive, where we don't have an opportunity for product substitution and to be paid for a higher end. That's just not a focus. That's not to say that there is an NDI going there. We're just not playing in those areas. Got it. Well, I'm just trying to comment on that. I mean, the process is that we're always going to have to make potty make MDI, but our plan there is to take it downstream through ACRAZA Demilec. So that polymeric MDI that we do have to produce in the United States will be wholly consumed by acquisitions like Demilec. And they turn those component commodities into high value, high growth downstream products. I think that's the real magic of what we're trying to do here. And an unrelated topic, Peter, there was, I guess, some ethanolamines tariffs put in place by China on imported product. Do you guys ship any of your stuff over to China? Not certainly not a meaningful amount. I mean, if there are spot opportunities from time to time, but, most all of our ethanol means they remain in North America some of it goes to Europe, but that's, I would say, it's an immaterial market for us. Thank you. And now from John Roberts, UBS. Thank you, John. You're live. Thank you. Maybe you could comment on how you see environmental enforcement evolving in China, whether or not the transition from national enforcement to provincial enforcement any modifications to $2.26. Do you see that affecting your business in China at all? I think that fair to say that, everything that we have heard. And again, we're just now getting into that season where that enforcement takes effect. But I think it'll be very similar and perhaps some of the knock on effects will be similar to what we saw this past year. And is the Chinese downstream systems market dominated by the integrated producers, or is that supply chain disaggregated? I think it's a combination of 2, similar to what it is in the U. S. And Europe. If you were to look at our customer, our competitors. And if you would ask me, 3 or 4 years ago, John, who our biggest competitors are, I would be telling you that our MDI fellow MDI producers. If you ask me today who our biggest competitors are, it's other downstream nonintegrated players. And we're seeing more and more where we're bumping up against those, which is which is what you would expect as you move further downstream. So I think we'll probably see much of the same, sort of environment in China as well. Thank you. Thank you. And now we have Alexis Yefremov from Nomura Instinet. Thank you. Alexis, you're live in the call. Thank you. Good morning. Peter and Tony, in the home building sensitive MDI products such as wood products and installation. Do you see any slowdown, any sign that customers are are destocking or expect weaker demand next year? Yes, good morning. Alexi, the I think if you look at the North American market, we're starting to see some slowdown in in new build in residential construction in the composite woods market. However, on retrofit, things like our spray foam business continues see strong double digit growth. So I think that we have a good portfolio offset from one against the other there. But yes, on I think on newbuilds, particularly in those areas where interest rates are going up, we started to see some slowdown, some destocking. Understood. Thank you. And Peter, you mentioned your strategy earlier, this year has been to lock in some customers in these systems deals. So skeptics might say that there's just a matter of maybe just a matter of time before those customers sort of become unlocked Is this a wrong way of thinking about this? And if so, why? No, I think that our experience, yes, it is the wrong way of thinking about it. Our experience would tell us otherwise. Typically when mills and when customers spec in our product, I think that that, Vianci, we've never really had an issue with it. I can't think and I'm looking at Tony here when I say this, I can't think of of a major customer, that has walked away from a deal, that we've had. I mean, they're dependent on us. We're dependent on them. And I like to think that we're all reasonable about economics and so forth. But again, recently when we had an opportunity to perhaps take volume away from some of these customers and sell it on the open market, make more money on it. We didn't do that. And I am in a great deal to our customers. And likewise, I think that in a seasonally looser times, if they've got extra pounds or whatever that they're looking to source, they'll lean in the direction of Huntsman. I think that that's why we have. If you look at the page, I think with page for or excuse me, page 5, where we have most of our locked in deals is in the Americas. And look on page 5 of the presentation and look at the lack of volatility that you see in the red line there. And that really is an indication of the longer term contracts and the solidity of those contracts over time. Thank you. Okay. Thank you. And we now have Frank Mitsch from Fermium Research. Thank you, Frank. Hey, good morning, everybody. Hey, Frank. Hey, just a quick housekeeping question. Following your Chinese MDI startup, how would you characterize the operating rates Frank, good morning to Tony. During quarter 3, I mean, let me just give a bit more color on that. We, we ran the plan to to validate performance guarantees that we had on the various new technologies on our new China unit, and that's been complete. So I we ran the plant, pretty hard in quarter 3 to really test it. All those guarantees have been met. The plant is now fully capable and fully capable of producing at full rates. We're now going to match the output of that plan with the demand of the market. So I think that from here on in, we will progressively increase the production of that as demand requires. I think as we look at our other sites, in Europe, we're running that facility MDI full out, in the Americas running it full out in Asia. I think that we're, we're matching it to the demand. I think that we're, We're also seeing that same sort of action being taken, by other, producers in Asia as well, re recently read were 1 MDI producer there. We're shutting 400,000 tons down in November and 1,200,000 tons down in December. On inventory controls and so forth. So I think there'll be a pretty even balance. And globally, we see supply utilization rates probably, depending on where you are in the Americas, it's going to be in the very high 90s in Europe probably going to be around 90% utilization low 90s, and in Asia, depending on how hard plants are running, depending if they're shutdowns due to lack of natural gas or raw material restrictions and so forth, probably be somewhere in the mid high 80s. So globally, I think you'd see, something that's, that's high 80s approaching 90%. All right. That's very helpful. And Peter, when you were talking about the $37,000,000 spent on share buyback during the quarter, you said that you'd like to see that number higher. However, you were black out by various restrictions given the negotiations on Venator, etcetera. What should investors expect out of Huntsman on the share buyback front over the next quarter or 2 given where the shares are right now? Certainly, more than what we did in the third quarter. And I think I'll limit it at that just because I've got a lawyer in the room shaking his head at me. And I'll just say that, again, Our my number one priority, I would like to see Huntsman, for. Now again, I don't want that to be misreaded. There's a fire sale mentality or anything like that going on. But if we get, locked out for a couple of weeks or a month or so buying in shares because we have, actionable, intelligence within the company or a deal that's pending within the company or something like that. I think that that should take precedence, but other than that, I see our share price today with just my personal opinion. It's at a ridiculously low number and multiple. And we ought to be buying in shares as we can. Thank you. And Matthew Blair now from Tudor, Pickering, Holt. Thank you. Matthew, you're live in the call. Yes. Operator, we typically go for about 1 hour on these given the fact that I rambled on a little longer in the prepared speech part of the presentation and may have put some people asleep, why don't we Why don't we do one more after this question? And we'll go a little bit past the top of the hour. And if anybody has further questions beyond that, obviously, they can contact investor relations and have a personal one on one opportunity to talk to Ivan. What a treat that would be. I think at one point, you had forecasted the EBITDA contribution from the new Kaixin MDI plant to be around $20,000,000 in 2018 and then $85,000,000 at full rates. And given that there's been a ton of moving parts on Asia MDI, was wondering if you still think of those as good numbers? And also, that $85,000,000, is that a good number for 2019? I would say that that's a it's a good number as of today. And, I will just tell you that as we get into our next conference call quarter from now. For fourth quarter, we'll be into kind of February. And, we'll certainly be updating where we'll see that performance in 2019. I just feel much better talking about it once we have a year end behind us. Sounds good. And then, should we read anything into the slightly lower CapEx guidance for 2018 this just a timing issue or are you seeing slowing organic opportunities? And do you have an initial outlook on CapEx for 2019? No, I think that as we look at the year, we're probably looking at, around a 320, 325 number. And that's only a couple of 1,000,000 lower than what we had said at the early part of the year. Some of that is just going to be in timing on projects and the Gulf Coast continues to be very tight in particular, where we have a lot of our maintenance projects going on and so forth. So some of that's going to spill into next year. But I think that we want to make sure that we spend what we need to on mandatory environmental health and safe we have a very high barrier for, further investments on what I would call opportunistic capital. And so I hope that we're always on the side of caution there. Thank you. Thank you. And our last one for the questions now is Jim Sheehan from SunTrust. Thank you, Jim. You're live in the call. Thanks. Could you comment on the Demilec acquisition? How it's been performing thus far? And also with respect to the spray foam, markets. Some competitors are saying that pricing actions they initiated caused some demand destruction in the third quarter. Are you seeing any of that phenomenon as well? In the 3rd quarter, we saw about $7,000,000 for the quarter. I think that as we look into fourth quarter, we yet, obviously, yet to see, where those trends come out in the 4th quarter. But we continue to see good growth and the growth is about where we hit expected it to be. And, and we're seeing good pull through economics there. So I think our number one priority right now is to focus on the Americas, but we've also started to, introduce some of our technologies and techniques into Europe and into Asia. With the platform that we bought with Demilec. And that's going to continue to be a real focus for us as well. So we look to globalize that business. But right now, we continue to see the sort of growth that we've talked about in past. Great. I think, that concludes our call. I realize we didn't get too many of you that's in the queue. Feel free to reach out to me today at Investor Relations and, hopefully I can answer your questions. You for joining us. We'll see you next quarter. All of you that concludes your conference call for today. You may now disconnect. Thank you for joining and do have a good day.