Earnings Call: Q1 2018

May 1, 2018

Good day, ladies and gentlemen, and welcome to the Q1 2018 Huntsman Corporation Earnings Conference Call. My name is Matthew, and I will be your operator for today. A question and As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Ms. Ivan Lapiza, Vice President of Investor Relations. Please proceed, sir. Thank you, Matthew. Good morning, everyone. Myvermark who's with Huntsman's Corporation, Vice President of Investor Relations. Welcome to Huntsman's first quarter 2018 earnings call. Joining us on the call today are Peter Huntsman, Chairman, President and CEO and Sean Douglas, Executive Vice President and CFO. This morning before the market opened, we released our earnings for the first quarter 2018 via press release and posted it 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 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. On May 23, we will be hosting an Investor Day in New York City, where we will be discussing our strategy for each of our businesses and expectations looking out the next few years. If you would like to attend, please contact Investor Relations to receive more information about this event and to also register. In our earnings release this morning, we reported first quarter 2018 revenue of $2,300,000,000, adjusted EBITDA of $405,000,000 adjusted earnings of $0.96 per diluted share. I will now turn the call over to Peter Huntsman, our Chairman, President and CEO Ivan, thank you very much and thank you everybody for taking the time to join us this morning. Let's turn to slide number 3. Adjusted EBITDA for our polyurethanes division for the 4 quarter was $261,000,000. Our MDI Urethanes business, which includes our propylene oxide, polyols and system businesses recorded adjusted EBITDA of $245,000,000. Compares to $148,000,000 10% volume growth year Let's turn to slide number 4. Our strategic focus of growing our downstream specialty and formulation businesses remain unchanged as we shift more MDI from components to systems. In the first quarter, we saw 15% year over year growth in volumes within our differentiated business. Looking at growth, regionally in the quarter, our North American volumes increased 14%. The strong volumes primarily driven by our composite wood products, insulation and adhesive sectors. With our China expansion gradually ramping up some North American product previously earmarked for China is now being freed up enabling stronger growth in North America. Demand remains strong for our MDI in this region, and we expect to show a positive rate of year on year organic growth in North America throughout 2018. Our European region MDI volumes increased 11% in the quarter. We saw growth across all of and automotive businesses. India, the Middle East and Russia also continue to see double digit growth. Asia volumes increased 4% versus the prior year as we remain capacity constrained in this region. Our new China facility continues to start up, which we expect to take a period of about 9 months to reach full capacity. We will bring on this new capacity as market dictates. Fully in line with the market conditions that we described in our last earnings call, Our component business continues to benefit from a remaining spike in margins, specifically in Asia and to a lesser extent in Europe. As expected, as a result of industry outages being resolved and new capacity airing the market, the short term spike in margins was reduced. We estimate the remaining benefits of the short term spike to be roughly $40,000,000 which is less than half of the benefit we saw in the fourth quarter. We expect that potentially half of the remaining $40,000,000 will be lost in the 2nd quarter and the remainder throughout the rest of the year. However, this will be partially offset by strengthening MDI systems margin and the gradual addition of higher Asian sales as our new Chinese MDI capacity comes online. It is very important to point out that the industry remains tight globally and any significant unplanned outages could cause the return of short term margin spikes as we have seen in the past. Recent demand for MDI is growing at about 6 to 7% globally on an annual basis as such in order to keep up with this expected demand growth industry capacity needs to expand at about 400,000 kilotons annually. This is the equivalent to have a world scale facility per year. With recent announcements of additional debottlenecks within the industry coming into the market in the next 3 years, and assuming a timely delivery between now and 2022, which is still short of the expanded demand growth of 6% over the same timeframe. Therefore, industry supply demand dynamics will remain tight for the foreseeable future. This may be a new normal for the industry, as we have good visibility, do not see any greenfield capacity entering the market for years to come. Regardless of possible periods of tightness in the future, we are focused on what we can control. We remain steadfast in our strategy of moving more of our business into stable and higher margin derivatives and formulations. In addition to our organic initiatives, we will continue to look for value creating and creative downstream bolt on acquisitions that allow us to pull through significant volumes of lower margin polymeric MDI into more specialized and higher margin formulations. These acquisitions will give us entry into new markets and an opportunity same bolt on acquisitions that provide significant synergies through MDI pull through and global scale ups. The acquisition of Demilec in our most recent is our most recent addition and our continued strategy to grow our downstream business. While there will be some cost related synergies, the majority of the benefits will be seen over the coming years from our ability to pull through roughly £50,000,000 of polymeric MDI into more stable, higher margin formulations that are growing at of approximately $15,000,000 of synergies, giving In addition, it's our intention spend spray foam insulation systems in the global markets in Europe and Asia. Looking out to the 2nd quarter, we would expect our MDI Urethanes business to be slightly down sequentially, but significantly up from levels of a year ago. As we anticipate further reduction of the short term spike margins given where we see Chinese polymeric margins today. Again, this will be partially offset by Lastly, our MTB business improved versus last year and reported EBITDA of $16,000,000. If crude oil and gasoline margins remain steady, we would expect a similar result in the 2nd quarter. Let's turn to Slide number 5. The Performance Products segment reported EBITDA of $102,000,000 in the quarter. Total volumes increased 10% for the quarter compared to the same period of a year ago. After a challenging second half in 2017, Performance Products is back on a good recovery track. The EBITDA of our more stable and higher margin derivatives businesses which would include amines surfactants and maleic and hydride increased 25% versus a year ago. This first quarter and the year ago period or comparable operating environments. So the earnings growth in these businesses can be described as a solid recovery. New product applications in the oil and gas drilling and oil recovery markets, agricultural applications and lubes and gasoline additives are just a few end markets that we expect better than GDP growth. Looking toward the second quarter, I expect the underlying fundamentals of our derivatives businesses and performance products to show steady year on year growth, partially offset by some margin pressure in our upstream and intermediates business. We expect second quarter to be equally strong with the second quarter of last year in the first quarter of this year. However, as per our guidance in the past 2 quarters, we see a $15,000,000 to $20,000,000 EBITDA hit due to a scheduled multi year turnaround Let's turn to Slide number 67. Our Advanced Materials business reports EBITDA of $59,000,000, an increase of 9%. This business remains focused on growing its core specialty businesses, and as specialty volumes increased 4% in the quarter. Continuing the positive trend we've seen over the last year or so. In fact, this quarter was a record EBITDA for our specialty business, and we expect these businesses to continue growing from the strong base. The revenue and EBITDA improvement in our specialty business is primarily driven by our expanded earnings and coatings, adhesives, our coatings, additives, automotive composites and industrial adhesive sectors, our Arrow space and DIY consumer adhesive businesses are also continuing to show steady growth. Our commodity business, which includes the wind market, had minimal contribution to in our specialty business has been driven by the investment we've made in innovation during the last couple of years. We expect to see this trend to continue. We will further invest in this business in order to add effects to our portfolio and to grow into expanding markets with new and existing customers. We see this business as GDP for the remainder of the year and we'll expect earnings for this division in the second quarter to look similar to the first quarter. Turn to Slide number 8. Our Textile Effects division reported EBITDA of $26,000,000, up 24% versus the prior year. The business continues to grow at straight quarter of volume improvement. 3 is demanding higher sustainability standards for the chemicals and dyes used in its products. This trend is clearly benefiting our global leadership position in these markets where we sell a full range of products that meet our customers ever increasing sustainability standards. Additionally, our global footprint is also allowing us to take advantage of an increased trend of our customers to source regionally in order to meet shorter fashion cycles the improved EBITDA in this quarter was driven by the higher Our longer term view is that this business will exceed $100,000,000 in EBITDA with mid teen margins in the next couple of years is unchanged. We would expect earnings 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, each of our divisions reported meaningful improvement in EBITDA over the prior year period. We see solid growth in our business. Our adjusted EBITDA $60,000,000 in the prior year period pro form a for the separation of our pigments and adidas business. Overall volumes were up 9% and the increase in in MDI. A stronger euro versus the U. S. Dollar resulted in a translation benefit of approximately $30,000,000 versus the prior year. Compared to the prior quarter, our adjusted EBITDA increased to $405,000,000 from an adjusted $360,000,000. The $45,000,000 sequential improvement in adjusted EBITDA was largely driven by volume. The decrease in price quarter over quarter is largely resulting from the reduction in short term margin spike in MDI and due to overall product mix. We improved over the prior outages that occurred in the fourth quarter of 2017. We also benefited from foreign currency translation largely from a stronger euro currency versus the U. S. Dollar. Turning to Slide 10. We remain focused on preserving the investment grade profile of our balance sheet. We ended the quarter at the lowest net leverage in our history at one point three times net debt to last 12 months first quarter adjusted EBITDA. This compares to last year when our $1,000,000,000. As we shared with you on our last earnings call, our Board of Directors authorized share repurchases of up to $450,000,000. Since then and through April 19, 2018, we have acquired approximately 3,500,000 shares have spent approximately $103,000,000 at an average price of approximately $29.45 per share. Of this total, approximately 1,700,000 shares were purchased during the first quarter or $51,000,000 and the rest were purchased following the end of first quarter. Given the relative value of our stock, we see these purchases as prudent use of free cash flow. As noted by Peter on April 23, 2018, we completed our acquisition of Demilec, for approximately $350,000,000 subject to customary working capital adjustments. We funded this bolt on acquisition out of available liquidity, including borrowing on our revolver and accounts receivable securitization facility. Our pro form a leverage ratio taking this into consideration is approximately 1.6 times. We see Demilec as a great fit to our downstream strategy within our Urethanes business with significant synergies and future growth in earnings. We remain focused on generating consistent strong free cash flow. During the first quarter of 2018, we generated free cash flow of $56,000,000 compared to $23,000,000 in the year ago period. Our first quarter is typically the lowest cash generating quarter due to a seasonal build in working capital. Working capital metrics were similar to the prior year with days inventory lower by 1 day and days receivable higher by a few days, largely because of increased sales $450,000,000 $650,000,000 of free cash flow each year over the next several years. We still expect to spend approximately $325,000,000 on capital expenditures this year. With respect to cash taxes our 1st quarter of tax rate for 2018 will be between 20% to 22% and that our long term tax rate is still targeted between 23% to 25%. As noted, last quarter, this long term rate assumes a release of a portion of valuation allowances later this year. We still hold our 53% interest in Venator. I remind you that Venator is accounted for as held for sale on our balance sheet and as discontinued operations on our income statement. I look forward to our Investor Day on May 23, where we will be joined by each of our businesses and where we will have the privilege of sharing with you and more granularity the solid outlook we have for our business. Peter, back to you. Thank you, Sean. This past quarter is the best quarter in our history with the present configuration of businesses that we now have, yet I don't believe any of our divisions are at their potential. All of these divisions have plenty of room for growth and earnings improvement this year and in years to come. As I said last quarter, we fully for the next 3 years. I believe that each of our operating divisions are uniquely positioned to show how they will achieve meaningful growth over this time period. We also expect to update and I'd like to take I would like to conclude with a few comments touching on some of the events of this past quarter. Our position Venator is sound and we continue to the fundamentals of the TiO2 industry to remain robust. We're in no hurry to sell our remaining 53% and will do so when a more realistic value can be realized for this business. Regarding our free cash flow, we're well on track to generate between $450,000,000 $650,000,000 of annual free cash flow annually over the next few years. As we outlined in our last call, we've started to buy in shares. In the past 2 months, we've spent over $103,000,000 to buy in over 3.5 1,000,000 shares at an average price of $29.45 per share. This past quarter, we closed on Demilec Inc. A downstream MDI Urethanes consumer selling into the spray foam market. By year end, This should be a greater than 25 percent margin EBITDA integrated business with growth at better than 10%. Our priorities will be to and grow our core business bolt on acquisitions and maintaining a strong balance sheet. Since our last Investor Day, March of 2016, We have accomplished we have accomplished what we, what was then our stated plan and created substantial shareholder value. I expect plans and opportunities going forward to be even greater and create similar shareholder value. I look forward to seeing many of you there at that time Operator, will you please explain the procedures for Q And A and open the line up for questions? And your first question comes from the line of Kevin McCarthy of Vertical Research Partners. Please proceed. Hi, this is Matt on for Kevin. Good morning. Can you talk a little bit about the Malayic market? It seems like we're now kind of continuing to recover from the brief period of oversupply, but We have some expansions coming down the pike, it's like Lanxisen and then China. And then, also potentially a few assets up for sale. So Can you just provide a outlook for what you see there? Well, we continue to see the Malay business operating in the mid-twenty percent, 20% to low 20 percent EBITDA to sales margins. I don't see the capacity coming into the market over the course of the next year or 2. As being any, any, anything that would diminish the long term effect of the business. The business When I when you say the business suffered from some overcapacity, I think when we look back at the performance of 2 years ago, The business was operating at about a 35 percent EBITDA margin. And while I'd never say that any chemical is operating at too high a margin, you obviously are going to be attracting new investment at those levels. And that, that, I think, was an artificial high in as much as none of our competitors, I think 2 or 3 of them simultaneously were down during that, that nearly 1 year time period. So as I look at Mulek over the last 5 to 10 years and as I look out over the next couple of years, Huntsman has a very strong and low cost position in North America. We do in Europe. We continue to invest in that business and we'll continue to do so. And I see that as being a vital component of our performance products and continuing to operate in around that 20 plus percent EBITDA to sales margin. Okay. And then We had heard about some operational issues in MDI during the quarter, specifically Rosenberg, I think, you said to be operating below rate though. I don't think you CLair force majeure. And then similarly, we kind of suspect Geismar might have had some issues just given the freezing conditions experienced throughout January. Can you quantify any operational hits during Q1 for MDI that you might have had, if there were any? Yes, I think most of the industry went through some phase of a freeze along the U. S. Gulf Coast and that January, late January, early February, while our Geismar facility wasn't affected, some of the ancillary off-site suppliers of services were affected, and which subsequently affected our facility indirectly. And what we also did have some issues again with an off-site facility in our Rotterdam MDI facility. I'd say that in the first quarter, it's fair to say that, both of those upsets, the one at Geismar and the one in Rotterdam, probably cost us around $4,000,000 or $5,000,000 a piece during the quarter. So had we not had those you know, we probably would have done $5,000,000, $10,000,000 better in the quarter. But I, again, I would would not say that either of those were terribly unusual given that you usually have upsets like that during your winter months. Thank you for your question. Your next question is from the line of Lawrence Alexander of Jefferies. Please go ahead. Hello. So is your line on mute? We don't hear you. Sorry about that. Dan Rizzo on for Lawrence. In Performance Products, could upstream intermediate EBITDA contribution go back to Q4 levels in Q2 or worse? Given the margin pressure and outage? Could upstream margins? No, I don't, no. No, on the intermediate side, I don't believe that will be the case. In Q4, we were down for prolonged period of time. We also were recovering from the residual from the residual effects of Hurricane Harvey, and I don't see that taking place. I think that Q2 is going to continue to be a very strong quarter, I would expect a normalized type of earnings in the 2nd quarter for performance products to be around $100,000,000, but then we'll be hit with the one time effect of $15,000,000 to $20,000,000 EBITDA from, from the downtime, the multiyear TNI that we'll be taking. Okay. And then just with the acquisition, could you just give us color on timing to capture the synergies? I think that it will probably be the latter part of the year when we have the full impact. Again, most of those synergies are that we will be taking our our lowest valued MDI margin business and moving that into the Demilec acquisition. That's obviously going to be a process will require some re qualifying and making sure that the supply chains and so forth don't cause any disruption the changeover of supply doesn't cause any disruption to our customers. But when you look at what we're really trying to do here in the business is really gradually to take that commodity component MDI business and continuously uplift that, in this case, £50,000,000 of business into higher margin applications. And so it's a process that won't take place overnight. Now, obviously, I kind of see 3 components to the synergies and the business growth opportunities there, really 4. I see one is being the organic growth of what was the Demilec business now Huntsman. And I think they have a very aggressive, growth that has been over the last couple of years growing at better than 10%. We see that continuing internally. Number 2, we see the integration of taking low value, component MDI and upgrading that through the Demilec route the market. Number 3, we see an opportunity to look at the SG and A, the overall cost of doing business and so forth. And while that number won't be nearly as large as the is the pull through economics on MDI. There will be a synergy component there. And lastly, we're anxious to take, the great marketing sales expertise and so forth Demilec has and takes out to rapidly expanding markets around the world, something that Demilec has been unable to do. We already have routes to market in China, throughout Europe, throughout Central Asia and so forth. And so we see all four of those steps is being, is being vital to this business becoming a $40,000,000, $50,000,000 EBITDA business here over the next year or 2. Thank you very much. Thank you for your question. Your next question is from the line of Frank Mitsch of Wells Fargo. Please proceed. Hi, good morning. This is Jacob Hughes on for Frank. I think S and P and Moody's made some outlook changes earlier this month. Can you give an update on those discussions and the status of investment grade? Well, I'll let, I'll let Sean comment on that. I would just say that I feel a tad bit personally, not that I'm biased towards the business or anything, but it's a tad bit like Charlie Brown in the fall time when he goes out and they set the football and he goes to kick it and they keep moving the football. I look at where our debt is, where our cash flow is, our cash generation, what we told the market, we'd be doing 3 years ago, 2 years ago, 1 year ago. And what we're doing today, I mean, I'm glad for the upgrade, but I think we probably in my humble opinion probably should have had better than that, but I'll let Sean comment on that. Peter, Peter sums it up well. I would just say that, look, we've had great conversations with them. We feel that we're solidly in the range for investment grade. 1 of the one of the agencies came out in their release and they specifically said Huntsman is solidly in the investment grade metrics. And then they said we just want time. Look, I think we're both both agencies put us 1 notch away. Both of them have a positive outlook. And so I think that says enough. I can't speak for what they're thinking, but I think from a Huntsman perspective, we deserve to be investment grade. Got it. Okay. And then on the buyback, you did over $100,000,000 to the 19th. Which is a bit more than we were expecting. How do you think about the pace of buybacks here versus the acquisitions opportunities that might be pursuing? Well, I think that we in our last call that we clearly outlined, we believe that we have got plenty of gunpowder, if you will, to be able to do both and to pursue both and maintain a strong balance sheet. And I think that we need to very carefully balance the demands of all 3 of those. I think that we will continue to assess the share buyback. I think that again, I don't want us to be put in the trap when we're telling the market that we're going to buy X numbers of shares over the next 3 to 6 or 12 months. The board has, has given us an amount of money to, that we think over the course of the next year or 2 can and should be used judiciously to buy in shares. And we'll do that as we assess the market from time to time. Now having said that, I think that our priority remains that we've got to deploy capital that is going to create the greatest amount of value. And I think that as we look at the overall market today, in my opinion, I believe that many of the assets that are out there today are simply overvalued. And the I think that it would be a mistake to be chasing a short term acquisition, that longer term is going to jeopardize our balance sheet or is going to be dilutive to our shareholders. And so I think that we need to be disciplined in this sense. If we're going to pay higher than our trade multiple today. We need to make sure that there's growth, that there are synergies, that there's other things that'll make up for it. And that at the end of the day, these will be accretive to our shareholders. So I think that we need to continue to balance those, but we certainly don't want to paint ourselves in the corner saying that we're going to be, buying amount in acquisition or why amount in share buybacks in the next couple of quarters. Got it. Okay. Thank you. Thank you for your question. Your next question is from the line of John Roberts of UBS. Please proceed. Thank you. Can you hear me? Yes, we can. Peter, any interest in a longer term ethylene arrangement either contract condo arrangement. It seemed like a relatively opportune time here, if you kind of get a little bit more integration in the business. Yes, I think now if you're going to invest in ethylene, would certainly be an opportune time to do so. I would be really hard pressed to see this company deploy its capital in up stream ethylene production. We've been there before. It's feast or famine. And I think that the direct that we're trying to go with ethylene production is we've got a small unit that produces roughly 2 50,000 tons a year, 220,000 tons a year. It's an opportunistic unit, meaning that if it makes money for us, we'll operate it. We've shut that unit down twice in the last 20 years that we've owned it. If it's not going to make money for us and then we'll temporarily shut it down. That makes money for us, then we'll, we'll be producing ethylene. I think over the course of the next couple of years, as we look at the the spot market today for ethylene. And as we look at the amount of ethylene coming into the market, I think it's going to be a buyer's market more than a seller's market. And we're going to be uniquely positioned as a buyer of nearly 1,000,000,000 or consumer of nearly £1,000,000,000 a year of ethylene to be able to take advantage of that. So I wouldn't, I again, I never want to say never, but I couldn't imagine the scenario right now as I sit here of us investing in an ethylene facility. And then secondly, is there a time limit on how long you can use held for sale accounting without actually selling? Well, I think general accepted accounting principles are probably interpreted well by the by our auditors and by ourselves. But I would don't think that'd be coming an issue here. I think as we sit here today, the intention is that we're still a seller and, we'll realize that when it makes sense in the market. So I don't see that as an issue. Thank you. Thank you for your question. Your next question is from the line of P. J. Juvekar of Citi. Please go ahead. Good morning. This is Eric Petrie on for BJ. Eric, good morning. I wanted to ask about your MDI capacity forecast of the 5 percent CAGR through 2022, does that include any discounting of announced projects or similar ramp to full capacity of the 9 months that you assume for your own capacity at Caojing? That is assuming that everybody that has announced in the industry comes on when they say they're going to come on at the capacities that they say they're going to come on which I don't believe has ever happened in the history of the industry. But again, that's our assumption. I'm not here to discount what competitors may or may not do, but that is taking every publicly announced debottleneck expansion and assuming that it's all going to come on at full capacity, as stated publicly. Okay. Following the completion of your Rotterdam and Caojing joint venture expansions, how does your capacity split change playing the component of polymeric MDI versus your more downstream specialty MDI? Well, today, today that split would be in the mid to high 70s. And I would imagine that if we were off operating, we get to a point later in the year, early next year when we're operating, a full capacity in, in Caojing, that, that split would probably drop down into the low 70s. You'll lose a couple of points on that. But again, I also just want to make sure that the market doesn't have this perception that it's either low margin component or high valued differentiated, formulation. I think that it's more of a line going from the bottom left hand to the upper right hand. And along that line, there are going to be some component businesses and business opportunities, particularly for instance in North America, where it's a more valuable, higher margin, strategic, bigger volume business for us, in certain areas, it'll be component. Than some of our downstream formulation businesses maybe in Europe or Asia. So I don't want to leave the market with the impression that will be eventually will be at 100 percent all formulation. I'm not sure that's the right strategy. I think the right strategy is that you continuously want to be bottom slicing your MDI margin business and upgrading that. And some of that's going to be upgrading to higher value component. Some of that's going to be upgraded. Most of that will be upgraded into to higher value added formulation. And I believe that that formulation, the beauty of the formulation, while you may jeopardize some of the peak margin in that formulation is that you will have higher and more stable margins on average through the cycle. And that ultimately is what we want to do not just in polyurethanes, been in performance products and advanced materials textile effects and to be able to have a total group of assets that are going better than GDP Henry, you see a stable and consistent generation of cash and value. Thank you. Thank you. And your next question is from the line of Jim Sheehan of SunTrust. Please go ahead. Morning. Thanks for taking my question. Can you talk about your MTBE margins and how sustainable the margin improvement might be there? If you can tell me what the, crude price is going to be and what the gasoline crack spread will be in the next couple of quarters, I'll tell you a fifty-fifty I'm not trying to be glib. I just just as a rule of thumb, technically, MPBE is a product that is sold into the gasoline market. The raw material for gasoline, obviously, is crude oil. The raw material for our MTBE is natural gas. North American based natural gas liquids, methane going to methanol, butane is going to isobutane isobutylines. And so is that and, of course, intrapleurally, as I look at that, the wider the spread is between crude oil and North American gas liquids. The wider that spread is the wider the MTB margins are be. Now there's going to be all sorts of variables in their octane components and gasoline variables and so forth and so on. But as a rule of thumb, the higher crude prices are ratio to, North American natural gas liquids are usually usually the better that is, for MTBE. So I would say that, that is a, if we're going to be looking in a future of of WTI and Brent prices of around $60 to $70 a barrel, NPV probably will look a little bit better than expected of 2018 than the guidance we gave earlier that it was kind of at a breakeven. But Again, that's as quickly as I said that, as you know, MTB prices move minute to minutes as it's traded like gasoline. As soon as I said that, I can be proven wrong, but typically over the last decade is rule of thumb. I think that's pretty accurate. Great. And do you expect any outage impacts in the second quarter at your European MDI facilities? No, no, I wouldn't say anything that's material. Great. And how much was the benefit that you had in textiles from the refunds in the second or do you get any more benefit in the second quarter for that or how much was the benefit in the quarter? No. The benefit in the first quarter was about $2,000,000 and we may get $1,000,000 or so in the second quarter, but I it would be it'd be de minimis. I see the 2nd quarter being pretty stable to 1st quarter. Thank you for your question. Your next question is from the line of Hassan Ahmed of Alembic Global. Please go ahead. Hey, good morning, Son, how are you? Very well. Thank you. Peter, in the past, you've talked about how long it takes to sort of start to finish set up a MDI facility. And even once an MDI facility is mechanically complete, it could take, as much as 2 years for the the facility to be sort of at optimal operating levels. So with that in mind, you talked about a debt in MDI margins Q4 to Q1. Obviously, I would imagine, you know, some of these facilities that had some sort of short term issues coming back online, but obviously you had some greenfield facilities coming online in the Middle East in particular. Have you guys seen that product, in the market now or asked differently, you know, the facilities that came online in 2017, are they in your view, fully sort of running at optimal operating rates? Well, I obviously can't speak for the, for the competition I'd be doing in the Middle East, but I believe from everything I've heard from what they've said publicly that they are running that facility, full out. And I would remind you on that, that is a components capacity, is that all the MDI coming out of that is component. And so while I think that it may have an impact on the wider component market, we're not seeing a great deal of impact in competition, obviously, on the downstream business. Now there might be a knock on effect that you've got some component going into a market and then other competitors are taking their component business and moving it perhaps into the formulations and so forth. But by and large, on the non component business, which is the vast majority of RMDI sales, we're not seeing a lot of impact on that competition. But I from everything I've heard and from everything that I've anecdotally seen within our own business. I believe that they're running at or very near capacity. And then I think that they've probably started up initial from, again, just news reports about a year ago. And so I think that's probably it seems about right. Very clear. And as a follow-up, Peter, you guys obviously talked about a recovery in the performance business last year and it seems, I mean, in Q1, we saw that. I'm just trying to get a sense of near to medium term, what a sustainable margin level would be. I mean, is this sort of 17% ish EBITDA margins within performance, kind of, how we should be thinking about steady Eddie margins, near to medium term in that segment? I think the longer term, and I and again, I'm not trying to evade a direct answer here. I know that the divisional president of that for our investor day here in a 2 or 3 weeks time is going to be getting into the next 2 or 3 year outlook on that. So I don't want to steal any of this thunder. But I think in that business, I've always thought of that business as kind of being a high teen sort of, of a, of an EBITDA business. And I think that when you look at it where it was a couple of years ago, where it was right around that hovering around that 20% margin. Our objective over the next 2 years will be to take that business when I look at when that business was operating at its peak of around 20%, 21% margin a couple of years ago, that largely was on the back to advantaged North American GAF going into ethylene. And it was also around the huge demand the wind and the wind, markets where a lot of the amines and so forth were going. And we also saw that, that 30 plus percent margin in maleic. So when I kind of asked myself to get back to the 20% margin, do we need to see malaise back at 30% EBITDA margin? Do we need to see wind recover? And do we need to see ethylene, go to the margins where it was 2 or 3 years ago? If that's our basis for getting back to 20% margin is on, I wouldn't believe it. So Our challenge is to convince people like you that we're going to get back to that 20% margin, by looking at the market, looking at where we can build up our means markets, our surfactants, getting less and less dependence on personal care, detergents, and more dependent on on the crop protection, on motor oils, on gasoline additives, where we can look at the maleic going further downstream, amines going further downstream, where we're less dependent on olefins and so forth. And so I longer term, I think that this business in the next 2 years ought to be operating it as darn near 20 percent EBITDA margins. And we ought to be doing that without the dependency of competitors that are not operating at full capacity or dependency on a single application as we were kind of the last time. That happens. So I personally, I'm if I I think I said 2 or 3 years ago, there's one business that I could break out from the rest and and own it privately, it would be textile effects. And that was at the time when everybody was telling us, just give it away. It doesn't have a future. And I look at the growth in textile effects. So I look at performance products, out over the course of the next couple of years. I think it's going to rival our MDI business in growth and an opportunity. Now that might be a challenge for Tony Hankans to hear that. But nevertheless, I think that when we look at Performance Products, it's I think it's got a very stellar future and that future can't be based on a single strong product. Understood. Understood. Very clear, Peter. Thanks so much. Thank you very much. Your next question is from the line of Mike Sison of Ebank Capital Market. Please go ahead. Good morning. This is Conor Cloding on for Mike. So I was just wondering your your volume and differentiated MDI has been in the mid teens the last three quarters. And is that a good rate going forward? And what would have been the strongest geographies in end markets to drive that growth? Well, I think that's what we've been doing in the past with our differentiated formulation business. I think that we showed you a chart last quarter that kind of showed a solid base to the business, which largely was that formulation downstream business. And I think that that sort of margin so forth should continue going forward. And, and I would hope with further downstream focus and derivatization of products and so forth, that we ought to see a gradual improvement, on something like that. Businesses like this typically don't improve by 5, 6 percent a year. They typically improve incrementally, but they hold the gains that they make. And that's the that's, in my opinion, the sign of a real quality business. And so as we look at that MDI business moving further downstream, we want stability, we want cash generation, And, and I think that we're consistently building on that. We'll take advantage of the components, fly ups and spikes and so forth. And we'll call those out like we did last quarter. But I don't think that that necessarily is the basis of our future value creation. And where are we seeing it? I think that we're seeing it really across the board, but particularly in Europe and in North America, those are the businesses that are more developed and use applications and so forth. And I think that those are the businesses where we'll continue to see that formulation and the reward for that differentiation. It's not to say it won't happen in China. It's just that I think that look at the number of our system houses and where we have those downstream polyole assets and so forth and PO assets and what have you, it's largely Europe and North America. Great. Thank you very much. Thank you. Thank you for your question. Your next question is from the line Masney Blair of Tudor, Pickering, Holt. Peter, you mentioned that your Caojing MDI plant, you're looking at a 9 month startup process here. It's been 4 months since the start of the year. Could you disclose what percent utilization that that plant is currently at? Oh, I think it's safe to say that today, we're getting about 30% of our potential volume out of that plant today. Remember, that's a joint venture facility. So we've got some Chinese and partner offtake agreements and so forth in other parts of that plant. And I think that you're probably, we talk about starting up a facility. We're probably 5 months or so. Into that process. So that's about where we would expect to be at this time. And, we expect to see that ramp up And it's not only the volume that you want, but it's also the quality of the product that's being produced. Got it. Got it. And then Venator sitting at $18 a share here. It sounds like you're going to be pretty opportunistic in monetizing the remaining stake. I mean, we end the year and it's still at $18 a share, should we expect that you'll still hold that 53% Oh, I wouldn't want to speculate on that now, but I think that Venator is a great asset TiO2 fundamentals is, as I see it out over the course of the next 2 or 3 years, is, I think, going to remain strong. I like the macro effects that you see in that industry of consolidation. Of discipline, and I think that we continue to see downstream growth taking place in demand. Venator is a very competitive company. And I think that we'll have an opportunity to sell those shares at a higher more realistic value. Here in the coming quarters. But no, I'm personally, I think it was publicly reported a few weeks ago that I was buying the stock personally at So it's a I'm certainly not a seller at these levels. Great. Thank you very much. Your next question is from the line of Alexei Yefremov of Nomura Instinet. Please go ahead. Good morning. Thank you. Peter, you mentioned some MDI component price declines in Europe recently. And I think North America prices are about flat in this environment, do you expect systems pricing to rise in the remainder of 2018 in North America and Europe? Well, I think that by and large, they'll be steady. But again, I want to just I want to have this perception out there that our systems and our formulation businesses some of our products that we're selling under that title of systems and formulations, some of those products will have less than 50 percent MDI as part of the formulation. And so when we talk about pricing, we're talking about 100 of different price points, 1000 tens of 1000 of different SKUs, batches, formulations and so forth. And so when we talk about the prices are rising or dropping. It's kind of, I kind of think back to this monolithic polyethylene or polypropylene where the entire tide goes up or goes down simultaneously. I think that as you're able to create value with a customer, you're creating value and that value isn't necessarily a molecular value. It's the effect that your product has on the customer's end use application. And if we're doing our job in sales and marketing and pricing, We ought to be valuing and pricing that product around the value given to the customer, not necessarily what's happening with capacity utilization or even raw materials. So I would say that the macro condition is fairly stable, but I would hope that we're always out trying to create greater value, thus greater pricing, to both Huntsman and to our customers. Thank you, Peter. And just to clarify your, your outlook for polyurethane segment, you talked about a small decline in the second quarter. And I think in the remainder of the year, you mentioned there would be any declines could be offset by a ramp of CAGING facility. So, should we expect sort of EBITDA very roughly in the first half and polyurethane to be about the same as in the second half, including any effect of seasonality, etcetera? Goodness. My forecasting is usually good for about 48 hours. And so I as I think about this, but I think in in Q2 as we look at it, we look at it component that component price in mostly in Asia a little bit in coming off probably $20,000,000 from the first quarter. We see a chunk of that being offset by an improvement in, in our formulation businesses downstream margins gradually improving. And more tonnage coming available to us in China. So as I look between now and the end of the year, I see fairly stable markets, but I feel I've got a fairly decent take on Q2 Q3 and Q4 as you'll have to listen to the next conference call, I guess. Got it. Thank you, Peter. Thank you for your question. Your next question is from the line of Roger Spitz of Bank of America. Please proceed. I'm well. Did I hear correctly that Q1 ATM to be EBITDA was Nil? Q1, MTB EBITDA was, I think, is $16,000,000. Oh, 16. I'm sorry, I misunderstood. 16. 16. Okay. Yeah, which is the best it's been for several quarters. In Advanced Materials, I think you still have some BOR, and that was included in the group that was EBITDA was minimal. Was BLR itself minimal or perhaps because you use that downstream, you're not even including that in the commodity end of Admet? EBITDA? Yes. I think DOR, we typically as a company, I'm not a big fan of transferring products down. It costs. I like to transfer product components at market. So that you know with each component, how much value you're creating. So when we talk about our BOR business, even if we're using it internally, we like to try to account it as a separate group. So I think it's safe to say that BLR, whether we're using it internally, or externally, it's it was a de minimis amount of MTB or of EBITDA. Got it. Thank you very much, Peter. Your next question is from the line of Bob JPMorgan Asset Management. Please proceed. Thanks. Good morning. Good morning. Just a couple of questions obviously coming from the bondholder side, things look great. You got the upgrades. You're close to investment grades. Your metrics are already there. Spreads levels are there's probably a couple points of upside compared to some BBB. So I look at all that and I feel pretty good. I guess my concern even though I'm not an equity analyst comes from the fact of you're having the equities down the most it's been down almost any day today. And I know the sectors down, but that you're down 15% year to date. But just I don't know why exactly. I'm sure you might not know, but the market just doesn't seem to care. You're price value to EBITDA is below 6 times. My concern as a bondholder is balancing that desire for investment grade versus getting, I guess, frustrated to the point with your equity that you do something bigger. Bigger isn't always bad, but leveraging things like that. Can you just talk to maybe, I don't want to say leverage targets, but just given what's going on and it's been going on for a little while. Now what if anything, I guess I should be worried about as a bondholder, would you are you okay biding your time and giving the market time to to realize that there is value here? Or I guess I'm just trying to figure out how you look at this and if it's changing your mindset at all? Kind of like it's really the Venator situation you don't want to sell now, but what if it's just languages there? Yes, I am I am my father's son. And so if I was not frustrated with the share price, regardless of where it is, I would be I would be genetically mutating or something like that. But, I think that as you look at the overall business, I'm just a fundamental believer. That's why I referred to my closing comments. Looking back on Investor Day of 2 years ago, March of 2016, we were trading at $9 or $10 a share and people were wondering if we'd ever hit $15, let alone $20. And, here we are, well, yesterday at least 30. And I think that as I look out over the next 2 or 3 years, I believe that growth remains intact and delivering consistent results, meeting or beating the consensus of the market, I believe that there's, over the next couple of years, there's another $20 in our share price, that they can be achieved. And so I think the worst thing we can do is try to panic at the whims of, of, hedge fund managers or people that are redeploying cash into some other investment pool or whatever. Am I frustrated with the multiple of our stock price ratio to our, EBITDA. Of course, I am. I have been since we've been public. But again, I don't know if you'd want a CEO that wasn't it wasn't passionate about that. So I, you know, I think there's always room for improvement, but I think the worst thing you can do is try to do a, try to resolve your long term strategy with the short term fix. And so I that's just fundamentally. And I think just look at our track record. And for some reason, there's this perception out there that Huntsman's always out trying to buy the next big $1,000,000,000 re lever and everything. Look at us, since we did the ICI deal, which is now going on nearly 20 years ago. We've not done. We did Rockwood and we did that for the suppressed purpose when we bought it to combine it with our TiO2 business, and to spin it off. And that's exactly what we did. And we created over $1,000,000,000 in doing that. But I mean, Aside from that, we've not been out in the market doing big deals for several years. I think we've been very consistently focused on cash generation. Downstream integration, improving our margins and achieving our results. I think we can stick to that. Yes. Well, certainly as a bondholder, that's obviously what we want to hear. I guess just quickly and Well, and it's an equity, frankly, as an equity holder, that's what I think I need to be doing as well. Yes, and I would agree. I think, and I know you can't speak for the agencies, but your pro form a Venator sale, you're under one times levered. Is there do you view as two times or less kind of still in the range of what you would view as investment grade or do you have a number like that or not? Well, I think it's around 2. I think it's well, it's I don't think that it's a magic. At 2.1, you're out at 2.0 year end, I think that it's I think it's around 2%. But I also think that it's the direction of the business, your dedication to generating cash your, your focus on growth on maintaining that level. And it's all about consistency and achieving the results. So I'm not sure that if it's right at a magic, 2.0, often your investment grade, that were the case. We should have been investment grade 6 months ago. Right, right. Okay. Well, I just wanted to get your thoughts. Appreciate it. Okay. Well, thank you, operator. I think we're at the top of the hour. Why don't we take one more question. And I just want to be respectful of people's time. Yes. Thank you, sir. Your final question is from the line of Bob Court. Of Goldman Sachs. Please go ahead. Thanks for squeezing us in. This is Chris Evans on for Bob. I was hoping Peter you could give some context to some of the surging prices we're seeing in the commodity grade liquid epoxy resins. I know you guys are downstream and the more specialty end, but is there any flow through costs or benefits you might see or Or do you have any optionality to maybe shift some capacity to where prices are surging? Capacity to do that. That's not something I'd want to do longer term. I as I look at the number of players around the world, particularly in Asia, that are in that upstream BLR market. Boy, for every month, I was happy that I was in those applications. There's 11 months when you wish you were out of them, and you're just getting clobbered. And so I I if we have that ability to shift something short term and walk away from, the adhesives or walk away from the sealants or walk away from DIY or aerospace or something like that. I just think fundamentally, Advanced Materials. And I think you'll see this again in investment day. I think we're shaping up to have the best year we've ever had in Advanced Materials 2018 barring a major economic issue that's taking place. And I think that we look at 2019, 2020 and the ramp up of Arrow space, a ramp up of what we're seeing in the market, the nano comp technologies and taking those to markets and so forth and moving further downstream. I just don't see us shifting over and taking short term advantage of a BLR applications. By the time we were able to do that, shift over, it'll probably be gone. Got it. Thanks. And then going back to MDI, in your slides, you put out some CAGRs for demand and supply out to 2022. We were to look at maybe near term something like 2019 or 2020, how might those CAGRs on supply and demand change? I'm not sure that they're going to change appreciably. Bear in mind that when we forecast our numbers you're looking at these projects that are 100, 200,003,001,000 tons, all coming on in 1 fell swoop, 1 quarter. And even if it's a debottleneck, you're not going to see products. You're not going to see capacity ramp up in a matter of weeks. It'll come on over the course of a couple of quarters. You've got qualifying, you've got a whole bunch of different issues and so forth, not just operating issues, but at the customer level as well. Of qualifying those areas. So it's rather a lumpy, 1% here, 1% there. But as you look at it across the board, I think that it's going to be fairly consistent. If there's anything again, this is just my opinion. If there's anything, I think that when you look at MDI growth that we're seeing at 6% growth globally. If anything over the last year or 2, that's been rather conservative. And I think on the other hand, when we factor in all the capacity that's coming in, all these announced debottlenecks and plant conversions and everything. We're factoring that every one of those come in on time they all come in rather on budget, right at specification, right as plan. I think that may be a little just, and I think that our industry growth rates might be a little conservative. So I think there might when we look at that CAGR and as we look at the capacity, demand and, and, in supply, I think that it may be a little tighter than what we're saying, but that's just that's a kind of anecdotally might opinion on this. Thanks, Peter. Thank you. Thank you very much. I would now like to turn the call over to Peter Huntsman the closing remarks. That's it. And I've said more than I should. So thank you all very much for joining us, and we look forward to seeing you at our Investor Day on the 23rd of May. Thank you. Thank you very much indeed. Thank you for joining today's conference. Ladies and gentlemen, this concludes the presentation. You may now disconnect. Good day.