Venator Materials PLC
Q3 2018 Earnings Call Transcript

Published: 30 Oct 2018

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Venator Materials Third Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note this event is being recorded. At this time, I would now like to turn the conference over to Jeffrey Schnell, Director of Investor Relations. Please go ahead sir.

[Jeffrey Schnell:]

Thank you, Denise. Good morning, everyone. I’m Jeffrey Schnell, Director of Investor Relations for Venator Materials. Welcome to Venator’s third quarter 2018 earnings call. Joining us on the call today are Simon Turner, President and CEO; and Kurt Ogden, Senior Vice President and CFO. This morning we released our earnings for the third quarter 2018 via press release and posted it to our website, venatorcorp.com. We also posted a set of slides on our website, which will be used on the call while presenting our results. During this call, we may make statements about our projections and expectations for the future. All such statements are forward-looking 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 EBITDA, adjusted EBITDA, adjusted net income, free cash flow, and net debt. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website at venatorcorp.com. It is now my pleasure to turn the call over to Simon Turner, President and CEO of Venator.

[Simon Turner:]

Thanks Jeff and good morning everyone. It’s my pleasure to welcome you to our third quarter 2018 earnings call. Let’s begin on Slide 3. We reported adjusted EBITDA of $77 million for the third quarter. The decline compared to the prior period reflect softer underlying demand trend. Particularly in Asia, Turkey, and other emerging markets partially the offset by favorable price momentum and augmented by additional gains from our $90 million business improvement program. Thus far in 2018, we have generated $62 million of operational free cash flow of $41 million in total free cash flow, including the impact of spending-related part [ph]. Turning to Slide 4, in our Titanium Dioxide segment. Our Titanium Dioxide segment generated $75 million of adjusted EBITDA driven by higher TiO2 pricing and contribution from our Business Improvement Program. Pricing increased 8% compared with the prior year quarter, but declined roughly 1% sequentially after adjusting for Pori. Pricing was broadly in line with our expectations heading into what is historically a seasoning slower demand period and reflects regional variants. Sales volume declined 18% year-over-year, largely relating to slower than expected demand for our functional grade products relating to customer destocking. Adverse demand trends, particularly in Asia, Turkey, and other emerging markets contributed to roughly half of the volume decline in the quarter. Extended maintenance turnarounds also impacted availability of certain product grades. In the quartet, we incurred higher variable cost inflation, including raw material energy costs, which was partially offset by $3 million benefit from our Business Improvement Program. We envisage these trends will continue into the fourth quarter, principally in functional TiO2 grades partially offset by the stability of our specialty products and actions we are taking to manage our costs and inventories. Looking forward, TiO2 industry fundamentals remain favorable and we expect the regional market imbalances to ease in 2019 and beyond. We are focused on continuing to manage our pricing and cost structure to deliver stronger operating free cash flow throughout the cycle. Turning to Slide 5 on Performance Additives. Revenues declined roughly 5% compared to the prior year period driven by a 4% decline in volumes, predominantly in our functional additives and timber treatment businesses. Our adjusting for site various business part of our restructuring plan. That said, those impacts were partially offset by 2% pricing gains and a $3 million EBITDA benefit from our Business Improvement Program. Adjusted EBITDA declined $3 million year-over-year, largely relating to weaker than expected construction activity in North America and Western Europe and higher raw material energy costs. Looking forward, we continue to take steps to strengthen our manufacturing network and streamline our costs. These actions will be supplemented by further penetration in some more differentiated market and our Business Improvement Program and aim to offset seasonality and further pressures from raw material and energy cost inflation. Moving onto Slide 6 in the Business Improvement Program. We captured an additional $6 million EBITDA benefit in this third quarter building on the $41 million captured through the second quarter of 2018. We are on track to deliver on our targeted capturing approximately $30 million additional savings in 2018. The team is highly focused on delivering the benefits of our program, which further enhances our overall competitiveness in the market. We continue to expect it to capture the full $19 million to EBITDA run rate benefit in the first quarter of 2019. Before I turn the call over to Kurt, I would like to address the possible acquisition of Ashtabula. As it relates to the potential acquisition of the Ashtabula, Ohio, TiO2 complex following the expiration of the exclusivity period on September 29, 2018, we announced our intention to continue to negotiate with turnouts on a nonexclusive basis. We have not reached agreement regarding this potential acquisition, however, that exclusivity agreement provides the Tronox will promptly paid that it’s all a break fee of $75 million following the consummation of the Tronox/Cristal merger, if the sale of the European paper laminate business for Venator has been consummated, but the sale of the Ashtabula complex to Venator or has not been completed. We appreciate you may have additional questions regarding Ashtabula, however, we will not be providing more commentary on the topic of this time and appreciate your understanding. We intend to provide more details if and when appropriate. With that, I’ll pass over to Kurt to provide the financial review.

[Kurt Ogden:]

Thanks, Simon. Let’s, turn to Slide 7. On September 12, 2018 following the combination of our strategic review of our Pori, Finland reconstruction project. We announced our intention to close the Pori and transfer core specialty and differentiated production capacity other sites within our sulfate network. Total estimated cost to implement the plan are $430 million. We have spent $97 million of that total thus far in 2018. Approximately $200 million of the program will be spent after 2019, a $100 million of which will be deferred beyond 2021. We have flexibility on certain elements of the spending, the range for which is shown in the table. However, we are keen to restore the core specialty and differentiated Pori business as soon as practical. We believe the project will generate an IRR greater than 30% once complete with approximately $30 million of incremental adjusted EBITDA in 2020 and more than $60 million in 2023. Earnings from our specialty and differentiated product have a higher margin and are more stable throughout the cycle. In the third quarter, we recorded a restructuring expense of $428 million, $415 million of which was attributable to the announced intended closure of our Pori facility. $385 million of the Pori charge is non-cash relating to accelerated depreciation and other. As a result of these changes, we expect our total company quarterly run rate depreciation expense to be approximately $30 million per quarter beginning in the fourth quarter of 2018. Let’s turn to Slide 8. Venator continues to have an attractive financial position. At the end of the third quarter, we had liquidity of $511 million. Our cash balance was $251 million and the undrawn availability under our asset based revolving lending facility was $260 million. At the end of the third quarter, our net debt was $497 million and our net debt leverage remains attractively low at approximately one times our last 12 months EBITDA. Structurally, We continue to enjoy relatively low tax rates. Our third quarter 2018 rate appears low due to low taxable income and the regional mix of income. On a nine month basis, our adjusted effective tax rate was 16% and our cash tax rate was 11%. Well within our estimate of our long-term adjusted effective tax rate of 15% to 20% with a cash rate of 10% to 15%. Additionally, we continue to have approximately $1 billion of net operating losses from which we expected benefit for several years to come. Turning to Slide 9, Venator generated $62 million of operating free cash flow through September 30, 2018 or $41 million after accounting for the impact of Pori. The pace of change in the TiO2 market has impacted our working capital expectations for the year and we now expect a more moderate source of cash in the fourth quarter of 2018 from working capital. This is less than we have experienced in previous years. In total, we expect the working capital use of $75 million to $100 million for the full year. We are taking more aggressive steps to manage our working capital in light of current market conditions. We’re currently in the process of reviewing preliminary 2019 expectations. We are targeting normal course capital expenditures of approximately a $100 million in 2019. In addition to the $40 million to $70 million we will be sending on our Pori transfer CapEx. In total, we’re targeting $140 to $170 million of total company CapEx in 2019. With that, I’ll turn it back to Simon for concluding remarks.

[Simon Turner:]

Thank you, Kurt. Moving to Slide 10. In the second half, TiO2 pricings trends are reflecting regional dynamics with stability in North America overshadowed by moderation elsewhere. Volumes in the third quarter reflect customer destocking particularly for functional grades amplified by weaker than expected demand in China and other markets including Eastern Europe and Turkey with raw material and energy cost inflation weighing on margins. Despite that backdrop, we continue to execute on our Business Improvement Program and I’ll focus on managing our manufacturing network and costs to streamline our organization. Stepping back, the industry outlook remains favorable with limited fresh capacity expected and an encouraging medium-to-long term demand outlook. Especially for our high-value specialty and differentiated products. We expect these trends three near term factors will largely abides in 2019 as the regional adjustments balance. Our Pori transfer project is underway and we are currently engaged in the necessary lease consultation process with the local workforce regarding our plan. We are focused on transferring our Pori specialty and differentiated capacity to other sites, so that we can continue to supply our customers to apply specialty products. We thank you for your continued interest in Venator. I’d now like to open the call for questions.

[Operator:]

Thank you, Mr. Turner. We will now begin the question-and-answer session. [Operator Instructions] Your first question will be from David Begleiter of Deutsche Bank. Please go ahead.

[Unidentified Analyst:]

Hi, this is [indiscernible] forDavid. I guess, first, can you talk more specifically about the destocking activities you’re seeing in Q3, are these more broad based across different end markets, I guess, when do you expect that demand to stabilize?

[Kurt Ogden:]

Okay. I would like to pick that up. And I think the question is best sounds through the lens of the regional dynamics. So, as we said earlier, we had a significant quarter three volume deficit of around 18%. We saw some markedly softer conditions in China. I think that’s pretty well trailed in Asia, and across broader Asia, we see some muted demand. We said a number of times that, there are more third party distributors and agents in that region than any other and it’s not region that we’re seeing most of the destocking coupled with softer demand and that accounts for around half of the volume reduction we saw in the third quarter. In North America, I would characterize the conditions, it’s been a little bit softer than we expected. Mainly in coatings [ph], and in the rest of deficit in our core western European markets where we are the market leaders. Look, you saw our reduction in pricing of an aggregate 1%, as the market leader here we were pushing hard to hold price for value out there in the market the prices of our products. It’s fair to say we lost a little bit of share. We saw some weaker demand in Europe during the quarter, particularly in the later quarter where we was customers destocking, we saw a reduced Chinese imports into Europe and we saw people anticipating lower fourth quarter priced or so, that should give you the color across the regions. I would say the exception of my comments around a coatings in North America, it was relatively broad based across the applications. I would point out that in our specialty business we did not see this destocking and we did not see volume reduction and neither did we see price erosion.

[David Begleiter:]

Thank you. And secondly, I think last quarter you said, you’re expecting $10 million to $15 million EBITDA headwinds to your TiO2 related to higher raw materials. Can you quantify the actually the impact from that and where do you think that will be in Q4 and when do you expect to fully catch up with a higher presence?

[Kurt Ogden:]

Yes. Let me, go ahead and take this one – that one. This is Kurt. As it relates to the prior guidance that we had relative to ore an energy headwinds that was a commentary, a sequential headwinds 3Qversus 2Q, we had indicated $10 million to $15 million. We came in lower than that within the quarter. I will also add that relative to our guidance, which was a similar range for the price headwind and the volume headwind, it came in more than what we had anticipated that developed in September as we saw that increased, particularly towards the end of the quarter. But ore and energy was with less of the headwind than what we had anticipated.

[David Begleiter:]

Thank you.

[Operator:]

The next question will be from Duffy Fischer of Barclays. Please go ahead.

[Mike Leithead:]

Hey guys, it’s actually Mike Leithead on for Duff this morning. Simon, could you just add a bit more color to the regional price differentials you’re seeing in TiO2 today and maybe how you expect these to normalize going forward?

[Simon Turner:]

Yes, I think, I made the point that we had – we saw 1% drop in pricing sequentially third quarter. We continue to see some modest erosion, probably in Europe in the fourth quarter. We think prices and a condition is a holding well up – up well in North America and we do – but we do expect to see a continuation of the price erosion in Asia that we saw in quarter three and that’s all those comments are relate to our functional business and our specialty franchise actually we see some modest price increase in the second half of the year.

[Mike Leithead:]

Got it. And then you touched on some of the destocking you’re seeing across the industry. How should we think today about where channel inventory sit across the various regions?

[Simon Turner:]

Yes. look, I think that there’s no doubt that the destocking was more pronounced in Asia. I think at the aggregate level, if you look back where we are today, and of course, our ability to talk on behalf of industry levels is somewhat constrained, but we can talk from our own perspective. But what I would say to you is wild product is available and we wouldn’t describe the market as tight as we close the year and we rarely do in the fourth quarter in any event. These inventory levels remain significantly below the levels they were when we saw the last run down and the back end of 2015. And I think we could think about those inventory levels as around the 50 or so, Mark, as we close the year.

[Mike Leithead:]

Great. Thanks guys.

[Kurt Ogden:]

Thank you.

[Operator:]

The next question will come from John McNulty of BMO Capital Markets. Please go ahead.

[John McNulty:]

Yes. Thanks for taking my question. Given what we’ve seen in the stock, which obviously, it’s been under pressure with, I guess the full industry at this point and the balance sheet flexibility that you highlighted earlier in terms of, in terms of some of the flux there, I guess at what point do we see. I know you’re in the process of at least negotiating for the ass to Ashtabula assets. but I guess at what point do we see you decided to move toward the stock as opposed to moving toward other assets out there? I understand it’s an attractive one, but I guess how should we be thinking about that going forward?

[Simon Turner:]

Well, I think as we indicated earlier, we don’t want to get into the Ashtabula in detail other than to reiterate that, what we could say too, is that, we believe that grownups has indicated that their intention is now focused on other potential counter parties. And I would go further than that and say that it now – now is less than likely that we will conclude, an Ashtabula transaction with products. So, I think as it relates to that transaction, that’s the kind of a clear saving from myself, and as we look on a go-forward basis, we have seen these transitory effects, this passport that we’re in the process of finalizing cementing plants on a go-forward 2019 basis. I think we’ve been quite consistent on pulling out some of the raw material inflation factors. We recently announced about our plans to cope with our specialty, a recovery program from party in two other sites and I would say to you that, that is probably the focus of our cash.

[John McNulty:]

Got it. Fair enough. And then just a question in terms of, in terms of raw materials, our understanding is you’ve got a couple of facilities actually along the Rhine river and I know there has been some force measure issues with other chemical companies just because of the barge traffic is. The water levels are so low you can barely get anything in. I guess how are you, how are you getting raw materials to your two facilities along the river and do you see any risk of disruption at all as we look forward going over the next few months, few quarters?

[Simon Turner:]

The broader answer to your question is we don’t see any disruptions bennettsville. it’s true that we do use the – to some extent, we also make use of quite a significant amount of road freights. And so we don’t think this fact will cut into than towards the position as well.

[John McNulty:]

Got it. Thanks very much for the color.

[Simon Turner:]

Thank you.

[Operator:]

The next question will be from Aleksey Yefremov with Nomura Instinet. Please go ahead.

[Matt Skowronski:]

Good morning. this is Matt Skowronski on for Aleksey. Just to start out, there’s some recent reports saying that tariff from the U.S. on TiO2 product being shipped from China is kind of going to shift trade flows. How do you think if that’s going to impact your business? Is that going to kind of spill over into Europe and secondly, with regards to China environmental inspections last year were pretty heavy. Do you think that they are going to be similar to last year or a little bit lighter?

[Simon Turner:]

Okay. I’ll pick that up, because I think both of those questions matter responsive to the point that we make around China and the maturing of the Chinese TiO2 industry. And I think we can’t state enough that we – while we can see some of these factors to greater or lesser degrees; they are becoming quite consistent factors. We know that of course, in China, there has been some governmental pressures with the inspections, we expect those to continue. We know there's been some moderations and we expect some consignments as we close the year in the winter period. Whether they'll be for the same degree as prior, it’s yet to be seen. I think, we don’t have so much visibility on that at this stage. What we can tell you is that, of course, the demand conditions in China is being softer and we’ve noticed that the Chinese local producers agitating for higher increase – price increases within China. We’ve also seen the more mature and developed producers, argue for exports and push exports into other regions. I said earlier that, we’ve seen now after a higher volume coming into the Europe in the first half of the year. We’ve seen a reduction as we go into the second half of the year and I think that is further evidence of the fact that these are ever more sophisticated Chinese producers being thoughtful in their approach. I would point out the U.S. tariff barriers while they may deter to some extent Chinese imports, the demand would still need to be fulfilled. And so it’s not a net loss of the system. I would see the system of trade force rebalancing. And I think we’ve covered a number of occasions that at this stage, we don’t see meaningful or large quantities of chloride or high grade type project – products in entering Europe. We expect – we don’t expect to see that in the – in the short term. To the extent that Chinese producers are trying to get into the nascent chloride production. It remains to be seen how successful ramp ups are. And of course, it will increase their cost structures. So, we believe that’s another factor that would need to be taken into account for exports. So broadly speaking, I think these dynamics we see relating to Chinese producers are dynamics we haven’t seen in previous cycles. In my view that’s more evidence of maturing Chinese block, particularly the larger exports.

[Matt Skowronski:]

Thank you.

[Operator:]

The next question will be from Matthew DeYoe of Vertical Research Partners. Please go ahead.

[Matthew DeYoe:]

Good morning. So, typically the health and price of mineral sands market slags that a pigment, but it also seems like we have some structural tightness in certain ore grades. So, as we look into 2019, what do you – I mean, do you expect to see any raw material relief on a kind of consolidated Venator raw material basket basis, or do you expect to still see raw material inflation?

[Simon Turner:]

I would say that in aggregate we expect to see raw material inflation. And then Kurt can add to my comments. I would take the three categories that we typically have discussed for ores being lower TiO2 containing ilmenite, upgraded slags and rutile materials. Clearly, there is significant tightness and agitation for high price levels in the rutiles. And I expect that in the case of natural rutiles, we will see a continuation of the material price increases or cost increases for those products. I think that in the lower grade ilmenite, we are seeing a price is from a whole basket of producers, bearing from flat to mildly up. And I believe that to the extent that’s nearly half of our purchases are that type of product that will help Venator. In the case of higher grade slags, I think, an important point to note here and I take you back to the previous couple of cycles there, it's undoubtedly true that ores lag TiO2, let's face, six to 12 months depending on the type of products and that we can concur with. But we intend as our customers do with us to negotiate hard with these high-grade slag producers because we believe the evidence last time out in the last cycle was such that these producers have to somewhat moderate their aspirations for these products as we tried very hard to use efficiencies to reduce the amount of volume we took out of those products. So I think, I would see this slag increase as being higher than ilmenite, probably less than rutiles, but at the level, you’d have yet to be determined as we go into next year.

[Kurt Ogden:]

Yeah, Matt. I’ll just add to that, as we take a look at the increase in raw material costs that we have seen thus far in 2018. If we were to hold steady, the prices or the costs that we have in the third quarter and project those forward into 2019. all up, they would represent approximately a $40 million headwind, of which about half of that would be the ore component or the ore headwind. So that assumes that a price is just to stay flat from where we are. I think offices that will have that position this first commentary at this time, has provided as to where, whether or not they move beyond where they are in the third quarter.

[Matthew DeYoe:]

Okay, that’s helpful. And then if I think about the regional price dynamics between Europe and China, how much downside do you think is implied or possible to the European market? Should we kind of return to more normal price discrepancies as it relates to ilmenite product between the two markets or I’ll see…

[Simon Turner:]

I’m sorry, can I clarify some question related to Europe and China or you’re on which other agents?

[Matthew DeYoe:]

Yes. Europe and China…

[Simon Turner:]

Yes. So within domestic China, of course, despite my earlier comments about price increases being nominated, local prices are still some way below even the Asian prices to the tune of a couple of hundred dollars a ton. And I don’t see that changing over the next 12 months or so. As it relates to Europe, as you know, earlier in the year, we saw something, again, back to Chinese maturity, Asian prices – broader Asian prices being some of the highest prices in the world. So while those have fallen back a little bit, the way I think about the pricing as we close the year, it’s all of the major regions outside of China itself are converging within the bounds of what we’ve seen over several cycles of arbitrage of juicy and freight, which typically is around $250 a ton and that’s spread. And that’s kind of where we are and that’s spread while we might move around within the band, I expect that spread is the spread that will remain.

[Matthew DeYoe:]

Okay. Thank you.

[Operator:]

The next question will be from Jim Sheehan of SunTrust. Please go ahead.

[Pete Osterland:]

Good morning. This is Pete on for Jim.

[Simon Turner:]

Good morning.

[Pete Osterland:]

Was the volume weakness in additives this quarter, do more to one-time factors like weather or are you seeing a weakening of construction or any other end markets that could continue going forward?

[Simon Turner:]

Yes. look, we did see a split in additives, particularly in the north american colors business around and timber around both construction and coatings. It was amplified slightly by a last piece of business within our timber treatment business as well. So, I would see it has been stopped, but I don’t see it as anything particularly sinister.

[Pete Osterland:]

Thank you.

[Operator:]

And the next question will be from Laurence Alexander of Jefferies. Please go ahead.

[Nick Cecero:]

Hi, this is Nick Cecero on for Laurence. Just to may be piggyback off that last question, I was wondering if you could parse out maybe some of the weakness between north America and Europe and which ones maybe you saw that you were weaker and…

[Simon Turner:]

Yes. I think the question here is dissociating fundamental demand weakness to destocking and as I said earlier in Asia and those territories and countries traditionally targeted by Chinese export. those were the countries with the highest in a third-party channel, where we saw significant destocking and that accounts for about half of our deficit. In some trouble countries like Turkey, et cetera; we also saw some political factors as well. But there was a reduced demand within China very clearly that has led to some exports and it has led to also some destocking and weaker demand across the broader Asian country block. And I think that’s quite well trained at the economic level. in Europe, the matter was slightly different. We did see some weaker demand, but not so dissimilar to what was anticipated. but in the late part of the quarter, we didn't see from destocking and so what we would cost them in a breath holding as it were in advance of fourth quarter lower prices. So there has been some destocking in Europe by no means to the scale of Asia and in Europe, as I said earlier, holding out for prices here, we have seen some slight business losses in nominated account. In North America, again, it's different. In North America, we haven't seen destocking in any shape or form. We've just seen a slightly softer demand conditions, but generally I would characterize that market and economy is holding up pretty well.

[Nick Cecero:]

Thank you very much.

[Operator:]

The next question will be from Bob Koort of Goldman Sachs. Please go ahead.

[Chris Evans:]

Hey, good morning. It’s Chris Evans on for bob. I assume your were planning to use your balance sheet to potentially acquire that Ashtabula plant, one that you described as being less likely now. Would you then be similarly interested in leveraging the balance sheet to buy back your own shares now that your multiple is likely below the levels you were evaluating that deal at?

[Simon Turner:]

Thanks, Chris. Good morning. And so we are constantly evaluating what we think ought to be the best use of capital and not withstanding the challenges that we see around the Ashtabula acquisition right now, Chris. I think that we are firmly committed to restoring the specialty in differentiated portion of our Pori business. And that has a pretty hefty price tag associated with it as you know. So, as it stands right now, that’s a priority of cash used for us. We’ll continue to evaluate additional cash uses. But as it stands right now, that is the priority number one for our free cash flow generation.

[Chris Evans:]

Thanks. And then operationally, how do you adjust to account for the softenings yet to demand environment while also facing, inflating ore and energy. Is there any reason to consider lowering operating rates?

[Simon Turner:]

Okay. I think it’s very important to note and as this goes to the heart of one of the industry points. Most management teams, certainly ours, very focused on what happened at the back end of 2015, early part of 2016, previous cycles and so forth. So it’s very important to us to act in a tenuous way as we see demand and production. We will be taking steps within this fourth quarter to make sure that we more appropriately match our production to ourselves. So that is something we can really do. We are at that time, you’re also what we’re looking at budgets and we are looking at other ways of extending further our cost competitiveness, which I’m sure we’ll talk to you in due course as we solidify our plans around that. So, those are the kinds of practical steps we’ll be taking a light of this effect we saw in this past quarter.

[Chris Evans:]

Thank you.

[Operator:]

And the next question will be from John Roberts of UBS. Please go ahead.

[John Roberts:]

Thank you. Do you know yet if your partner in performance additives is going to be new Dow or new DuPont?

[Simon Turner:]

John, I’m not sure of that. We can circle back with you and provide that to you.

[John Roberts:]

Okay. And then within Performance Additives, was the weakness more in the red color for bricks or was it more in the lumber treatment area?

[Simon Turner:]

John, it was split evenly. There was the timber treatment business was – it was around 50-50, but the timber treatment business related to the loss of some specific business, whereas the iron oxide business was more related to general market conditions in coatings and plastics.

[John Roberts:]

Thank you.

[Operator:]

And the next question will be from Roger Spitz of Bank of America. Please go ahead.

[Roger Spitz:]

Thank you and good afternoon. Just – first a comment, if you could sometimes show the year-over-year and quarter-over-quarter EBITDA bridges, we – again, we found them helpful. And the first question is, can you provide any of the pluses and minuses we should think about – when we think about Q4 2018 EBITDA versus Q3 EBITDA like you did last quarter?

[Simon Turner:]

Yes. Good morning, Roger, and thank you for the feedback on the bridges. As you know, we're always trying to improve and develop the information we provide. So, we appreciate that feedback. As we think about the fourth quarter EBITDA relative to the third quarter, we expect to see some headwinds associated with volumes. Traditionally, we see a sequential decrease in volumes to the tune of approximately 15%. We think it's going to be a little bit more modest than that this year, that's certainly what we have seen thus far in October. But from in EBITDA perspective, we think that's in the range of $10 million to $15 million of headwind. As it relates to price, we think that prices will be approximately $10 million headwind. And then as we think about ore and energy, we think that is less than $10 million. Of course, we're going to have some benefits associated with our Business Improvement Program. Right now, we think that it would be $10 million in total, which would be a sequential benefit of $4 million relative to the $6 million that we captured in the third quarter this year. So hopefully that gives you a little bit of color. As you know, Roger, we don't provide specific guidance, but hopefully that's enough to – for you to think about the EBITDA directionally on a sequential basis.

[Roger Spitz:]

Very helpful. Maybe if you said this, I didn't hear it. What is driving the difference between the European TiO2 pigment prices trend versus the North American trend?

[Kurt Ogden:]

Yes, so I think that – I'll pick that up. So as I said earlier with North America, demand has continued to be pretty solid in North America. North American pricing over these past quarters, several quarters has been lacking the prices that we've seen elsewhere, particularly in Europe. And so part of this convergence is a natural response to the erosion we’re seeing in Europe because of this significant destocking, plus some weakness in demand, which is bringing these prices back to convergence, which we typically see in this phase of the economic cycle.

[Roger Spitz:]

Great. My last question is within Performance Additives, you called out the higher raw material costs. I'm wondering, which ones you were thinking about, I suspect, the wood – Viance wood treatment was likely one, but let me know what you're thinking about.

[Kurt Ogden:]

Yes, there's nothing we can pick out to give you any kind of real – something to hold onto that because it's really across a broad basket of materials, which does include certain materials in the timber treatment business.

[Roger Spitz:]

Thank you very much.

[Operator:]

And the next question will be from Steve Byrne of Bank of America. Please go ahead.

[Ian Bennett:]

Hi, thank you. This is Ian on for Steve. You have a slide showing…

[Simon Turner:]

Good morning.

[Ian Bennett:]

You have a slide showing uses of cash and you have a line that says, Pori expenses, net for $21 million year-to-date 2018 and $270 million for 2018 expected. So can you just help me bridge to think about those two numbers?

[Simon Turner:]

Sure. Well, we have received the insurance proceeds during the year. And so what that represents is the net difference between the insurance proceeds that we have received and the cash outflows associated with Pori. So just to remind you, in 2018, we have received $298 million of insurance proceeds. And then we have netted out the capital expenditures, which for 2018 are $125 million. And then there are other cash uses associated with Pori that has been a netted out as well.

[Ian Bennett:]

Does that mean the difference between 2018 expected in 2018 year-to-date, $270 million versus $221 million, does that mean $250 million in the fourth quarter?

[Jeffrey Schnell:]

If I could answer, this is Jeff Schnell. The $270 million is the number that we expect in Pori expenses for 2018, the $21 million is the 2018 year-to-date is net of what we received as well.

[Ian Bennett:]

Okay. Maybe I can follow up on offline with that one. Thank you very much.

[Operator:]

And ladies and gentlemen…

[Jeffrey Schnell:]

Well, thanks everybody for your interest in Venator, if you have any additional follow up questions, please reach out to myself in Investor Relations.

[Operator:]

Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. At this time, you may disconnect your line.