Chemours Co (CC) 2021 Q4 法說會逐字稿

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to The Chemours Company Fourth Quarter 2021 Earnings Call. (Operator Instructions) Jonathan Lock, Senior Vice President and Chief Development Officer, you may begin your conference.

Good morning, and welcome to The Chemours Company's Fourth Quarter and Full Year 2021 Earnings Conference Call. I'm joined today by Mark Newman, President and the Chief Executive Officer; and Sameer Ralhan, Senior Vice President and Chief Financial Officer.

Before we start, I'd like to remind you that comments made on this call as well as the supplemental information provided in our presentation and on our website contain forward-looking statements that involve risks and uncertainties, including the impact of COVID-19 on our business and operations and the other risks and uncertainties described in the documents Chemours has filed with the SEC. These forward-looking statements are not guarantees of future performance and are based on certain assumptions and expectations of future events that may not be realized.

Actual results may differ, and Chemours undertakes no duty to update any forward-looking statements as a result of future developments or new information. During the course of this call, management will refer to certain non-GAAP financial measures that we believe are useful to investors evaluating the company's performance. A reconciliation of non-GAAP terms and adjustments are included in our release and at the end of this presentation.

With that, I'll turn the call over to our CEO, Mark Newman, who will cover the highlights from the past quarter and full year. Mark?

Thank you, Jonathan, and thank you for joining us this morning. I will begin my remarks on Chart 3. 2021 was a year where the Chemours team pulled together to deliver strong results quarter after quarter, despite being a year full of challenges. Our performance reflects strong customer demand for our products and our commitment to customer service and supply chain reliability through the toughest conditions, all underpinned by our company-wide commitment to the holistic safety and health of our workforce. Revenue was up 28% year-over-year to $6.3 billion. Adjusted EBITDA rose 49% to $1.3 billion. And we generated $543 million of free cash flow, consistent with our focus on sustainable growth and high-quality earnings across our businesses with strong free cash flow conversion.

2021 was truly a team effort across the entire business. In our TT segment, we built what we believe is the strongest book of contracted business ever with strategic customers who appreciate our value proposition and with whom we can grow over time. In TSS, we delivered strong sales and margin performance despite auto OEM headwinds and look forward to the growth we can achieve under the U.S. AIM Act. And in APM, we achieved record-setting results on both the top and bottom line in a business which is being driven by several exciting secular growth trends.

Finally, in Chemical Solutions, we completed the sale of our Mining Solutions business, which will give us greater bandwidth to focus on our industry-leading TT, TSS and APM businesses. I'm proud of the results we're reporting today and proud of the entire Chemours team that delivered them. I would also like to thank our customers for their trust and confidence in Chemours.

But 2021 wasn't just about the financial results. We made significant contributions to the planet, our people and the communities in which we operate through progress on our corporate responsibility commitments. Chemours believes that together with our employees, customers, suppliers and communities, we will create a better world through the power of our chemistry. Our chemistry is essential to so much of our daily lives today and is also key to a more sustainable infrastructure, clean energy and advanced electronics. In fact, we are integral to the U.S. semiconductor industry supply chain. And we are making significant investments to manufacture this chemistry responsibly with the latest abatement technology, all part of our commitment to reduce emissions of fluoro-organic compounds by 99% and greenhouse gas emissions by 60% by 2030. Additionally, we continue to focus on our remediation commitments at our key sites, including the barrier wall project at our Fayetteville North Carolina plant.

Finally, with the DuPont-Corteva-Chemours MOU behind us, we are actively working to address, manage and resolve risks to the company related to legacy PFAS liabilities. A good example of this is the resolution of legacy natural resource damage claims in the past year with the state of Delaware. As we look forward to 2022, our guidance reflects our confidence in Chemours and our intent to drive consistent performance through the cycle while generating significant free cash flow. We continue to invest behind key secular growth drivers, especially in clean energy and advanced electronics, and behind innovative and responsible chemistry that enables the sustainable products of the future, from advanced coatings to low GWP thermal solutions to fuel cells and beyond, all while strengthening our balance sheet and returning the majority of our free cash flow to shareholders.

Turning to the next chart. I'd like to highlight more of the good work we're doing across Chemours through our corporate responsibility commitment programs. Last quarter, we discussed our evolved portfolio pillar and how the AMAC will help drive Opteon low-GWP refrigerant adoption across the U.S.

Today, I'd like to cover our Inspired People pillar. The Inspired People pillar has been one where we have consistently delivered outstanding progress through all 3 platforms: safety excellence, vibrant communities and employee empowerment. In the fourth quarter, we launched a new program we called ChemFEST, short for the Chemours Future of Engineering, Science, Trades and Technology. ChemFEST helps bring STEM education to under-resourced middle schools in communities in which we operate. This year, with an initial investment of $4.3 million, we're bringing improved access to early STEM education to schools around our Wilmington headquarters, our New Johnsonville site, and our Chambers Works site. This program is a natural feeder to our FOSSI program, which targets high school seniors pursuing STEM education at the college level.

In total, Chemours has committed over $15 million to our inspired people initiatives and investment which will pay back many times over in the lives we change and the impact we have on the communities in which we operate. I'm proud of this work, which reflects our company's strong commitment, to purpose and people, and would like to thank Alvenia Scarborough, our Chief Brand Officer, and her entire team for leading the charge over the last several years.

With that, I'll turn things over to Sameer to review the financial results for the fourth quarter. I'll be back to talk about our guidance before turning to Q&A. Sameer?

Thanks, Mark, and thanks, everyone, for joining us today. Before I begin my remarks, I would also like to recognize all our employees for their outstanding effort over the course of 2021. Your energy and determination were instrumental in delivering the outstanding financial results, which Mark and I have privileged to report.

Let me turn to Chart 5 to cover the full year results. Our 2021 full year results were driven by strong demand across all 3 of our primary businesses, with a significant rebound in demand from 2020. Full year net sales rose $1.4 billion to $6.3 billion. Volume and price gains across the portfolio, backed by solid operational performance, drove the strong results. GAAP EPS more than doubled to $3.60 per share in 2021 from $1.32 per share in 2020. Adjusted EPS was $4 per share in 2021, also more than double the $1.98 per share we earned in 2020.

Our full year 2021 adjusted EBITDA was $1.313 billion, up $434 million or 49% from the prior year. This resulted in adjusted EBITDA margins of 21% for the full year, up 300 basis points from 2020. Free cash flow continues to be a strong point for the company. In 2021, we generated $543 million of free cash flow. This is despite the shift to net working capital consumption in 2021, based on improved customer demand and inventory levels. Our performance on free cash flow reflects the power of the business to generate significant cash through any part of the economic cycle and reflects our collective effort to improve the earnings quality of the business and spend.

Turning to Chart 6 and our fourth quarter results. Fourth quarter net sales of $1.6 billion were up 18% from the fourth quarter 2020. Price gains were strong across the breadth of the portfolio, while volume was up across most of our segments. Adjusted EBITDA rose 25% in the fourth quarter to $307 million, resulting in slight margin expansion to 19% versus 18% in last year's fourth quarter. Free cash flow was $131 million due to higher working capital needed to support increased sales and the impact of certain tax items in the quarter.

Turning to Chart 7. Let's review the adjusted EBITDA bridge for the fourth quarter. Fourth quarter 2021 adjusted EBITDA was $307 million, up $61 million from the same period in 2020. Price was a large contributor to the improved results with pricing gains across the entire portfolio. However, the impact of volume gains across most of our segments was more than offset by demand headwinds from automotive OEMs, primarily related to the impact of semiconductor shortages on automobiles. Our net price versus cost contribution continues to be positive despite the inflationary environment we are in. As I said in the last quarter, we continue to be diligent across our businesses to ensure that we stay ahead of inflation.

Turning now to Chart 8. Our cash position, liquidity and balance sheet remains strong, as they have throughout the year. Our cash balance at the end of the year was $1.45 billion, up from $1 billion in the prior quarter. In the fourth quarter, we generated $214 million of operating cash flow, and CapEx was $83 million. We returned $134 million of cash to shareholders through dividends and share repurchases. We reduced our debt by $70 million and proceeds from the Mining Solutions sale were also recognized in the fourth quarter. We ended the year with gross debt of $3.8 billion. Our net leverage ratio improved to 1.8x on trailing 12-month basis, down from 2.3x in the prior quarter. Total liquidity stands at approximately $2.3 billion, including revolver availability of approximately $800 million.

Turning to Chart 9. As we continue to strengthen the cash generation, we also continue to execute on our disciplined approach to capital allocation. In 2021, we invested $277 million in CapEx to maintain our assets, meet our CRC commitments and grow the business long term. Timing of our capital expenditures in 2021 was impacted by labor and material issues, which shifted several projects from 2021 into 2022. From a credit profile perspective, we reduced debt by $204 million in 2021. And we also contributed $100 million earlier in the year into the escrow account as per the MOU agreement with DuPont and Corteva. This amount is reflected as restricted cash on our balance sheet.

Last but not least, we continue to return the majority of our free cash flow to our shareholders with $164 million returned via dividends and $173 million through share repurchases in 2021. Since then, we have retired more than 10% of our total shares outstanding, going from approximately 181 million shares to approximately 161 million shares at year-end 2021.

Let's now turn to Chart 10 where I'll cover the results and outlook for our Titanium Technologies segment. Our Titanium Technologies segment continued to deliver in 2021 with strong performance over the course of the entire year, despite global logistics issues and feedstock disruptions. Ti-Pure pigment demand was strong across all regions and all end markets, as the global economy recovered from the low levels we saw in 2020. Our TVS strategy continues to deliver with strong traction across all 3 sales channels. Customers continue to see the value of a long-term relationship with Chemours as a reliable, high-quality supply has enabled them to succeed despite other supply chain issues. As a result, our contracted customer base has never been stronger. And we have welcomed many new customers in our Flex portal who want to buy Ti-Pure from Chemours.

Turning to the results. Fourth quarter net sales rose 25% to $865 million versus the prior year quarter. Price rose 19%, while volume rose 6% on a year-over-year basis. Fourth quarter adjusted EBITDA of $198 million improved 33% versus the prior year quarter. Segment margins were a healthy 23% despite ongoing our logistics constraints. Sequential price of 5% more than offset increased costs in the quarter. For the full year 2021, net sales were $3.4 billion, up 40% from $2.4 billion in 2020. Price rose 10% and volume was up 28% as demand returned from pandemic-induced lows in 2020. Adjusted EBITDA rose 59% to $809 million from $510 million in 2020. Full year margins came in at 24%.

We exited 2021 having regained all of the share lost on installation of our TVS strategy and then some. Price stayed ahead of rising costs throughout the year, despite inflationary environment, with higher costs required to support higher production.

Looking ahead, we anticipate strong demand for Ti-Pure pigment to continue in all geographies and end markets. At the same time, ore constraints are likely to continue into the first part of the year but will moderate over time. As Mark said earlier, we have never felt better about the customer book we have built and look forward to continuing to serve them with the highest quality Ti-Pure pigment available in the market today.

Turning to Chart 11. Thermal & Specialized Solutions delivered a strong fourth quarter and full year 2021, driven by improved demand despite headwinds from automotive OEMs related to semiconductor shortages. Our execution throughout the year was solid, and we continue to execute on pricing initiatives to stay ahead of rising raw material costs. The breadth of our portfolio across (inaudible), aftermarket and non-refrigerant applications enabled us to deliver solid financial performance despite the drag of automotive OEM demand headwinds and contractual price downs.

Looking more closely at the results, fourth quarter net sales improved 8% from the prior year fourth quarter. Strong price contribution in the quarter of 19% more than offset the impact of 11% lower volumes. As a reminder, the fourth quarter of 2020 was an exceptional quarter from an auto OEM demand perspective, but bills have been down across 2021 due to semiconductor shortages. As a result of these headwinds, adjusted EBITDA declined 8% to $97 million for the quarter. For the full year, net sales rose 14% to $1.3 billion, the result of stronger volumes and price, which rose 9% and 4%, respectively.

Full year adjusted EBITDA was $412 million, up 16% from $354 million in 2020. Adjusted EBITDA margins improved from 32% to 33%, demonstrating the earnings power of the segment. We delivered solid growth in both legacy refrigerants and low-GWP Opteon refrigerants across most end markets. As we look ahead, we expect a continued market recovery in 2022, with recovery in automotive OEM build rates from the semiconductor-related shortages of 2021. The U.S. AMAC and additional F-Gas enforcement in Europe will drive continued conversion to Opteon low global warming potential solutions. At the same time, we continue to enter new markets with innovative products, including Opteon 1150, our newest low-GWP foam blowing agent. Chemours remains well positioned to be the sustainable thermal management provider of choice for our customers.

Let's now turn to Chart 12 for our Advanced Performance Materials segment. The APM segment has delivered outstanding results throughout 2021 and exceeded our own expectations for profitability throughout the year. As the business has continued its turnaround, the power of our chemistry continues to shine. From polymers to membranes, the portfolio contains class-leading products, which are key to unlocking the future potential of high-growth end markets in clean energy and advanced electronics.

Sales at an all-time record of $346 million in the fourth quarter, up 24% from $279 million in the prior year fourth quarter. Strong demand drove 10% price and 15% volume gains on a year-over-year basis, with strong demand underpinning growth across the breadth of the portfolio. Adjusted EBITDA rose 160% to $65 million as price actions and productivity more than offset sharply higher energy and logistics costs in the quarter. For the full year 2021, we delivered record net sales and adjusted EBITDA of $1.4 billion and $261 million, respectively. The top line grew 27% from 2020 levels, with 20% volume growth reflecting strong demand across all product lines. Price growth and currency contributed 4% and 3%, respectively, to the top line growth. We continue to experience a favorable price/cost dynamic across a diverse product portfolio of the segment. And as a result, margins expanded to 19% in 2021 from 11% in 2020. This achievement was exceptional given the logistics and weather-related challenges we experienced during the year.

Looking ahead, we believe that strong underlying demand will continue into 2022. We anticipate headwinds from raw material costs, energy and logistics will moderate over the course of the year. In total, we continue to target top line growth in excess of GDP. We're also targeting adjusted EBITDA margins in the low 20% with operating discipline and efficient plant operations helping to offset rising input costs. We see significant market momentum building in clean energy and advanced electronics, where our technology is uniquely suited to drive higher levels of performance. Whether it's our Nafion membranes in hydrogen, our Teflon PFA in semiconductor fabs, our Viton elastomers in electric vehicles, APM is playing a leading role in enabling the technologies that will help shape the future.

Turning to Chart 13. We continue to focus the overall portfolio of Chemours and completed the sale of our Mining Solutions business in the fourth quarter. Compatibility of results in the fourth quarter and full year for Chemical Solutions segment was impacted by these portfolio actions. That said, the underlying business performance in PC&I and Mining Solutions was solid throughout the year. Fourth quarter net sales were $69 million, as the impact of price and volume gains of 8% and 14%, respectively, was more than offset by portfolio changes. Adjusted EBITDA was $8 million in the fourth quarter of 2021, again reflecting the impact of portfolio changes in the quarter. For the full year, net sales were $336 million, while the full year adjusted EBITDA was $51 million. Strong demand and pricing gains across the most end markets and key product lines contributed to the solid results.

Looking ahead, the segment is now focused on a world-class glycolic acid franchise. We anticipate solid growth in 2022 across both technical and high purity grades of product, along with continued expansion into new markets such as Clean and Disinfect and Electronics.

With that, I'll turn things back over to our CEO, Mark Newman, to cover our 2022 guidance. Mark?

Thanks, Sameer. I'll continue my remarks on Chart 14. Our business results have continued to improve steadily and are now well above pre-pandemic levels reported in 2019, a result of the hard work of our employees and execution of our focused strategies. As we look ahead to 2022, we believe our results will continue to improve with another year of solid earnings and cash flow growth.

Our full year adjusted EBITDA is projected to be between $1.3 billion and $1.425 billion, up 8% at the midpoint after accounting for the divestiture of our Mining Solutions business at the end of last year. We project adjusted EPS of between $4.07 and $4.70. Finally, we forecast free cash flow of greater than $500 million in 2022, inclusive of CapEx of approximately $400 million. Taken together, these results reflect the higher quality business we are driving across Chemours and our ability to improve earnings through the cycle.

From a capital allocation perspective, we remain committed to returning greater than 50% of that free cash flow to our shareholders in the form of dividends and share repurchases. To that end, we expect to complete the remaining portion of our $1 billion share repurchase authorization by mid-2022. With the momentum we have built in 2021, we believe 2022 will be another excellent year for Chemours and for all our stakeholders.

I would like to close with some thoughts on the next chapter of Chemours. At spin, we set out to create a new kind of chemistry company, one which would have the courage to make difficult decisions and lead the industry forward. The foundation, which has been laid, is strong. As we look to the future, the next chapter of Chemours, Chemours 2.0 as we call it, will refocus our efforts to create a better world through the power of our chemistry. This vision will be underpinned by 4 key elements: agile innovation and sustainable solutions, environmental leadership, community impact and making Chemours the greatest place to work for every employee.

To that end, I have challenged every Chemours' employee to ensure their work helps to contribute to these goals. I truly believe the spirit of this vision, owned collectively by our 6,400 employees, can take the company to new heights. And it will reward our customers, our planet, our team, and of course, our shareholders. I'm excited to be leading Chemours on this leg of the journey and look forward to engaging with all of you in the coming year.

With that, operator, please open the line for Q&A.

(Operator Instructions) And your first question comes from the line of John (sic) [Josh] Silverstein from Wolfe Research.

For 2022 for TiO2, you're still factoring in continued ore constraints and supply chain issues and raw material inflation. Are you factoring it to get worse relative to the fourth quarter versus -- or improvement throughout the course of the year? And then if there continues to be ore constraints, what are the supply alternatives for them?

Mark here. Our guide really assumes that we continue to build momentum in all 3 of our industry-leading businesses. And on TiO2, in particular, we were down sequentially in the quarter in line with expectations from a volume perspective on very strong demand. But as we had indicated in our Q3 call, we were ore constrained. And we expect that ore constraint to relieve itself in the first half of the year. So we start the year with ore constraint. Our expectation is volumes will be relatively flat from Q4 to Q1. But we'll then mirror more over the seasonal patterns beyond that as the ore situation resolves itself. So great -- good quarter on a great year. But I just want to share with you that we see real good momentum in all of our businesses, especially from a demand and a pricing perspective, which we expect to continue.

And then just on pricing under the TVS model. You pushed through another 5% increase this quarter on top of a 6% increase in the third quarter. With inflation indicators continuing to push higher and higher, is the expectation for you guys to keep being able to push through higher prices in 2022?

So our -- the short answer is yes. And as you'll see in our EBITDA bridge, we are continuing to be able to take price across our entire businesses in excess of cost. Clearly, you're going to have some lumpiness as you move through time. So it's not always a perfect timing in terms of how those 2 move together. But recall that we have 3 go-to-market approaches on the TVS, which provide us real price latitude. Maybe I'll ask Sameer to comment on that because that's something that we watch very carefully.

Thanks, Mark. John (sic) [Josh], look, you touched on the AVA contract but at the same time, in flex and distribution, as Mark talked about, there's an opportunity to push prices even faster than the AVA contract, right? So all in all, we feel pretty good about where the supply-demand is and what our opportunity is to pass through prices.

And Josh, bottom line, I would say our expectation is to have our TiO2 business. For the full year, we were at a 24% EBITDA margin. Our expectation on this business is to be in the mid-20s going forward. Clearly, you had a quarter in which we had lower volumes related to ore. And as that relieves itself, our expectation is through both price as well as volume, we would return this business to mid-20s going forward.

Your next question comes from the line of John McNulty from BMO.

So a question on the TSS business. Just in terms of how you're thinking about how 2022 plays out, I know we had some of the issues around autos being a little bit weaker in the back half of the year. I assume that there's an assumption in your guide for a recovery there. You also had some really strong pricing as well. So I guess, can you speak to how you're thinking about how that business progresses in terms of earnings trajectory through 2022?

Yes. John, thanks for the question. TSS had a good year despite the auto OEM headwinds. And of course, we had the winter storm Uri that impacted our Corpus Christi plant early in the year. So when you look at the year of being up 14% with greater than 30% margins with all those headwinds, a really great job by the team. When we look at IHS forecast for auto builds, we expect that, that to be in line with those projections. Clearly, we're focused on both the OEM and aftermarket growth in Opteon. And so we feel quite encouraged by that, and our guide reflects the continuing improvement of the auto as we go through the year.

On the pricing side, we're seeing a better market in the stationery, mainly here in North America but also in Europe. And as we get through this next COVID wave, our expectation is, we'll see a lot more folks returning to offices, business travel picking up. We'll see a lot more sort of normal recovery in the commercial aspects of the refrigerant demand across the spectrum. So quite encouraged by early indications in the year, but clearly, we have a cautious note in our guidance until the auto OEM situation clears itself.

Got it. Got it. No, that's helpful. And then maybe just as a follow-up to a kind of a broader question. So when I look at the guidance that you provided, it's a pretty wide range admittedly, and look, it's a crazy year to start. So maybe that's part of the rationale. But when I look at the low end of the range, I mean, it's basically pointing to when you adjust for the Chem Sol sale, about like 1.5% to 2% EBITDA growth, which, given kind of the outlook that you laid out for TiO2, the outlook that you laid out for TSS and what I would think is going to be continued decent demand growth in the APM segment, candidly, I can't figure out what could get you to that low end of the range. So can you kind of help us to at least frame the risks or the potential that -- or the things that could go wrong that maybe put you toward that low end of the range? Or is it just, "Hey, look, it's early and we don't want to set the bar too high type of thing?" Like, how do we...

Yes. John, I'd say it's early, and we're starting the year, obviously, with a number of uncertainties. We did mention being ore constrained in TiO2. We're seeing -- we're not through the semicon issue with auto. There has been some order disruptions even in the quarter unrelated to semicon. And so I think it's just starting the year with a lot of uncertainty and having some caution in our guidance. But I would not factor anything more into that than just being thoughtful early on in the year.

Your next question comes from the line of Bob Koort from Goldman Sachs.

This is Emily Kech on for Bob. So looking again at the 2022 outlook, it reflects a continued economic recovery and you guys mentioned the expected supply chain normalization in early 2022. So just kind of across the businesses, what trends have you seen that give you confidence in that normalization?

Yes. So Emily, great question. I would start by saying that demand remains strong in all key markets and all key product lines. And in fact, in many cases, we are -- we remain sold out and pricing power is in our favor. Obviously, we are working carefully with our customers to make sure we're not doing anything that's disruptive. But as I look at it, clearly, demand is strong at the outset but we're somewhat constrained, especially in TiO2, as we start the year. So I think our guidance really reflects growth -- top line growth in all of our businesses this year.

Clearly, if I go through the businesses, we're -- outside of TiO2, we will be looking at the impact -- starting the impact of the AIM Act in our TSS business, where we're going to start to see more traction on some of our blends businesses in refrigerants. Our expectation around our APM business is that's a GDP-plus growth from this point on because of all the secular trends related to both semicon and EVs that are driving our portfolio.

Okay. Great. And then just one more. Can you provide more color on the new strategic partnerships you mentioned in the TSS business.

Yes. Emily, this is Sameer. Let me just jump in. It's -- these are the strategic partnerships we have with the auto -- sorry, with the HVAC OEMs. Some of these are public and some are, of course, not in the public domain, but being across a broad spectrum of OEM suppliers. We have been working -- and as they transition to the new equipment, right, as the AIM regulation comes in, yes, it will be initially the blends portfolio, but all the OEMs are working through their models and upgrading how they will work with the new refrigerant. So there's a great exciting opportunities to be working with our key customers and to help them transition into the new product lines.

Your next question comes from the line of Arun Viswanathan from RBC Capital Markets.

I guess, first off, just real quickly on the cash usage. Maybe you can just kind of go through and order your priority uses of cash. It looks like you do have quite a bit of cash on the balance sheet there and about close to $1.5 billion, $1.45 billion, but it sounds like your buyback plans are for about $250 million in the first half. How do you plan to spend the remainder of the cash there?

So Arun, great question, and I'll start and ask Sameer to follow on as well. So clearly, when you look at our free cash flow generation in 2021 and the guide that we've given for this year, this will be the third year of free cash flow greater than $0.5 billion. So what we want investors to understand is this is a franchise which has improving earnings quality across all 3 businesses and significant cash conversion. This is a management team with support from our Board that believes in returning the majority of free cash flow to our investors. And in 2021, coming out of COVID-19, we thought a more balanced approach with that in mind made sense.

And so you'll see we made really good gains in terms of improving the strength of our balance sheet and our leverage ratios as well as returning the majority of free cash flow. We actually stepped up the cash flow to shareholders, more so in the second half of last year as we got more confident on the full year outlook. And we're coming into the new year and stepping that up again. So we have $250 million remaining on our current share buyback authorization. And our commitment is to have that completed in the first half of this year, consistent with the cash generation of the business going forward. Maybe, Sameer, I don't know if you have any other thoughts.

Thanks, Mark. Arun, just I will just go back to how we kind of talked about the cash usage in the past, right? But as a manufacturer, our first priority in terms of investing in the cash is to make sure we have safe and reliable operations. As you know, we have our responsibility commitments that we have to ensure we can cut down on the emissions and our -- there's some pretty attractive growth opportunities as well as Mark kind of talked about with AMAC and all the stuff that's happening around semiconductor, onshoring. It's a great exciting opportunities for us on both the APM, TSS and TT franchises.

So we -- our first priority is to make sure we do the right CapEx. And that's why you've seen in the guide roughly $400 million of CapEx. And our -- the way I would look at CapEx, Arun, as I said in my remarks, is a number of projects move from '21 into 2022. So combine that -- the '21 and '22 is roughly $350 million of CapEx. And after that, as Mark said, we'll do a little bit of a debt reduction. We are committed to our $3.5 billion gross debt target. We made pretty significant improvement in that. We'll continue to march forward on that. And then, last, as our commitment states that we will return a majority of free cash flow to shareholders.

So if you look at our comments around that we expect to finish the remaining commitment on the buyback program in the first half, that's roughly $250 million of cash coming back to the shareholders via repurchases just in the first half of the year. So that's how you should think about our cash usage: investment, credit profile enhancement and majority cash flowing back to shareholders.

Okay. And just as a follow-up, just I wanted to understand the high end of the guidance. I know there's about a $60 million difference between the midpoint versus the high end. So would you characterize that as mostly possible that $60 million in APM and TSS if there's quicker resolution on chip shortage issues or supply chain? Is that the right way to think about it?

Yes. Arun, there are lots of puts and takes, but I would say it's pretty balanced. Look, I mean there are growth opportunities across all 3 businesses, right? If ore situation is resolved, I think on the TiO2 side, as Mark said earlier, the demand remains really strong. So there's an opportunity from there from a midpoint to the high end. And on the TSS, you hit the nail on the head. If the auto OEM market recovers, I think that provides us some pretty interesting, exciting opportunities.

F-Gas regulation, Mark mentioned about AMAC, but at the same time, as the enforcement increases in Europe on the F-Gas, that provides us an opportunity as well. And similarly, on the APM side, I mean, as we talked about, the margin improvement as the efficiency of the operation improves, getting into the margins in the low 20%, that provides us a great opportunity as well. So it's an opportunity-rich environment across all our 3 businesses. So on the high end, I would keep it pretty balanced.

Arun, as I said, we really love the momentum we have in all of our businesses. Obviously, we're being very thoughtful on our guide early in the year. But when I look at TiO2, we have the best book of business that we've ever had, and we can grow with our customers. We are working to unlock debottleneck capacity to achieve that growth.

When I look at TSS, we have the recovery of auto plus the growing impact of AIM over time as well as just more commercial refrigeration as things go back to normal post COVID. And then in APM, we're working on so many exciting opportunities from semicon to hydrogen to EVs, to advanced electronics where our fluoropolymers really are the only answer to sort of solving the worlds most difficult issues. So I'm very excited about the potential of these 3 businesses. And the focus we have of our leadership team and our employees to keep driving forward.

Your next question comes from the line of Duffy Fischer from Barclays.

First question is just around your free cash flow. So last year, you guys did about 41% conversion from EBITDA to free cash flow. At the midpoint this year, that would give you $564 million of free cash flow, which is a pretty big distance -- I mean, it's within the guidance, but it's much higher than the $500 million. Is that conversion ratio still good in your mind? Or are you likely to convert less EBITDA to free cash flow this year than last year?

No, Duffy, this is Sameer. Let me just take that one. As you kind of look at the 2022 versus 2021, I think one of the biggest drivers is CapEx, right, as we kind of move from this year to next. As I said just to Arun, CapEx is going up. It's just a transition given how some of the projects got delayed. And also, I think from a working capital perspective, this is a year in which we will be more seasonal in terms of the working capital consumption and release of the working capital. So that's going to have a little bit of impact as well. 2019, 2022, inventories have been pretty light across chains and that applies to us as well. So as we kind of move into 2022, you're going to see some of the working capital stuff as well. So all in all, I would say combination of the 2 years given the CapEx movement kind of makes more sense, the way you look at it.

Fair enough. And then a couple of quick ones just on TiO2. One, as you exited last year, what percent of your TiO2 was on the AVA contracts? And then, two, if you look at the tons you produced last year, where is that relative to your capacity so we can kind of build in? If we think things are going to grow, how many more tons we're going to be able to add over the next couple of years to your revenue line?

Yes. So Duffy, we've guided to about 70% of our book of business is contracted and the rest is either/or distributor business or our Flex portal. And we oscillate around that from quarter-to-quarter, but that's a pretty good guide. What I'd tell you is in 2021, our mix of contracted business really improved. We use the market tightness as a way to enhance both products and customer mix throughout the year to where we can now say this is -- we're supplying the best of the strategic customers with the best contracts that we've had in our history.

So I'm really encouraged by that. Clearly, the impact of ore, as it relates to capacity, had an impact on our Q4 volumes and we're starting the year that way. So we would expect our volumes to be relatively flat from Q4 to Q1. But beyond that, we would expect to be able to show volume growth as well given our capacity.

Your next question comes from the line of Vincent Andrews from Morgan Stanley.

Could you just give us a sense of the visibility you have on the ore supply improving for -- after the first half? And I just asked you, obviously, the situation has gotten more challenging over the last 3 months. So I'd just like to get a better sense of how much comfort you have? And I have one more.

Yes. I would say the main thing that we are watching currently is ore supply to TiO2. Vincent, that related to some force majeure activity in Q3 of last year, which we see improving as we move forward in time. Clearly, even though things at the mine phase are improved, you still have the impact of a pretty congested logistics. So that's really playing into sort of our near-term performance. But again, our view is we see that resolving itself here in the first half, and we'd expect to have more to say at the end of Q1.

Okay. And just as a follow-up. If I look at your historical balance sheet and the cash balances at the end of the year, the lowest number I see is 2015's $366 million. Is that -- for a walking around assumption, is that sort of an amount that you could comfortably finish the year with on an ongoing basis? Or would you need more than that?

Yes. Vincent, this is Sameer. Look, I mean it really depends on the needs of the businesses and what kind of investments you're looking at U.S. versus non-U.S. cash. What I would say is, the balance sheet cash, you should really look in the context of where we are spending. Our view is, we'll continue to make investments in our businesses, both on the run and maintain reliability perspective and make -- continue to make progress on our CRC commitments, get our balance sheet debt back to $3.5 billion kind of a range. So we have committed to that, and then go back to returning majority of the free cash flow to shareholders. So look, I mean, that's how I would look at it. The exact balance sheet cash, as you know, can move around based on where the needs are. And also, really importantly, how we generate the cash into U.S. versus non-U.S. and making sure we have enough U.S. cash.

Your next question comes from the line of Josh Spector from UBS.

Just a couple of ones to kind of ore again. Just as ore limits supply, I guess, is it fair for me to think about most of your North America sales to be on AVAs already, so they get perhaps first dibs at North America supply? And does that mean that Europe gets a bit shorted in the near term in the next couple of quarters? And just on your 2Q seasonal ramp comment, I assume for you to meet that, you need the ore for 2Q already on the water and ships now. Is that in place to get a 2Q seasonal ramp?

So I'd say -- as I said earlier, the issue at the mine has largely been resolved. We're seeing improvements there, and shipments are on the water. So yes, the last question's answer -- the short answer is yes. Obviously, it's something we keep monitoring. Clearly, we are very focused on meeting our contracted book of business and their customer needs first. And when I look at our growth in 2021, we grew in all markets. So there's no sort of North America versus Europe versus AP trade-off here.

The trade-off is, hey, you make sure you deliver first and protect your contracted book of visions. And that's candidly part of the value prop that so many customers have flocked to -- are being contracted with Chemours. So in the short term, it will put a little bit more volume as a percentage on our AVA book. But again, this is just a matter of a couple of quarters here where we're somewhat ore constrained.

Okay. And maybe another way to ask that then is, is your Flex portal distribution significantly different than your average? I mean, I guess I would think maybe AEP perhaps has more of the spot market activity. Is that a fair way to think about it?

Our Flex portal is available to our global customers, so customers around the world in different markets. The availability on Flex is somewhat reduced when you're constrained. And then that usually results in prices on Flex, which reflect the spot market being significantly higher. So that's -- we always want to have volume available for Flex and distribution because of the opportunity it brings in a tight market like we have. And that's why we've made this sort of rule of thumb that we would constrain our contracted book of business to about 70% of our volumes.

Your next question comes from the line of Matthew DeYoe from Bank of America.

A few quick ones on the TSS volumes. So if the business was down like 11%, does that mean Opteon was down closer to 18% to 20%? And why does it take until 4Q to see that headwind given what we kind of saw transpiring even in the 3Q? I know you mentioned comps from last year. Is that the case? And what should we see this type of -- like should we see this kind of volume print consistently until we get to the back half of next year till things ease up a little bit?

No. So I'll start and maybe ask Sameer to comment a little bit further. Recall, Q4 of last year was a very robust recovery for auto. So it's just a tough year-over-year comp on auto volumes vis-a-vis the semicon-constrained build and Omicron-constrained build in Q4. So the way you should read that is just a year-over-year comp. Our expectation -- and I think if you look at IHS outlook, they're projecting auto volumes this year to be up around 10%, and so we're using IHS as a guide. Clearly, we're focused on both OEM and aftermarket opportunities as the Opteon car park continues to build.

Okay. And then a quick one on PFOA. So DuPont made some comments about making progress on settlement work. They really didn't go into a lot of detail on the call, maybe that's on purpose. But there's kind of this outstanding South Carolina MDL and perhaps other cases. I'm just kind of wondering through what the cadence of any kind of announcements we might get through the year, what you're looking at and how you frame out liabilities versus perhaps risk to setting precedents?

So Josh (sic) [Matt], I wouldn't speculate on cadence, but I'd make 2 comments here. First is DuPont, Corteva and Chemours continue to work well together under the MOU framework, and you saw that this year with the Delaware settlement that we announced last year. Secondly, as a leadership team, we're always open to potential for settlements that reduce the risk to the company but are done in a way that we believe create value to our shareholders, and so we will continue to have that mindset. I'm very encouraged by the fact that in my discussions with DuPont and Corteva, we have a shared view of using the MOU to work through issues that relate to our legacy path. So stay tuned, but nothing more to say at this time.

Your next question comes from the line of Eric Petrie from Citi.

I saw your second patent infringement case in Japan. And it's a good example of enforcement, but I was wondering, could you give an overview of your patent estate? And when could we expect the competitor to produce an HF low for the auto air conditioning market?

We continue to view our patent estate as going well towards the end of this current decade, and we will vigorously defend our IP estate globally. And so I'd just say, we continue to innovate around our Opteon franchise, bring new IP to market that makes the product better for our customers. And we would expect to continue to have significant IP defenses through later half of this decade.

Okay. And then secondly, on TiO2, given the shipping and logistics constraints, did you have to reroute any of your TiO2 volumes? I know Altamira is a big exporter of TiO2. So any changes in trade routes?

Eric, this is Sameer. Nothing of significance. Look, there's always supply chain teams making some adjustments here and there based on the port availability and the vendors that we use, but nothing material.

Eric, I'd just say, this year, our operations teams worked hand in glove with procurement and logistics and our customer service organization to ensure minimal disruption to our customers. And you don't build a book of business like we have by not really taking seriously your value prop to your customers. So I really -- it was a year where we had collaboration across all aspects of the organization. But a big shout out to our ops teams who, despite 3 waves of COVID, run our plants really well and worked with our logistics team to make sure our customers had minimal disruptions.

Your next question comes from the line of Hassan Ahmed from Alembic Global.

Questions around Titanium Technologies. Look, sequentially, your volumes were down 10%, and I obviously, understand the seasonality of things. I understand the sort of supply chain constraint considerations and the like. But one of your sort of larger competitors, back in November, had guided to volume decline sequentially in the mid-single digits. So I'm just trying to understand, did you guys lose some market share in Q4? Or was that just the way the market was?

And part and parcel with that, on a go-forward basis in 2022, now that you guys stated that you've regained your lost market share, how should we think about your volumes in TiO2 year-on-year? Will you grow with the market? Or will you continue to try to regain market share as you consider debottlenecks and the like?

Yes. Hassan, it's a great question. And clearly, among competitors, you will have variation quarter-to-quarter. But when you look at our overall volumes for the year, TiO2 revenue up 40%, it's hard to argue with the result that we had in the year. As Sameer said in his remarks, we regained the market share we lost with TVS and then some. So our focus here is to really maintain our market share, maintain/grow our market share. And -- but by doing that, by growing with our customers first. We have really, really good strategic book of business. And our focus now is how do we grow as our key strategic customers grow.

As it relates to sort of a volume outlook for the year, clearly, we're starting the year ore constrained. And as I said earlier, we expect that to alleviate itself as we move through the first half. And our expectation is based on the strength of the market we're seeing and how light inventories are throughout the whole system, that we should have another great year in terms of revenue growth in this business.

Understood. And as a follow-up, just sticking to TiO2 again. As you sort of sit there and look at where the cost curves are today, you rightly pointed out ore constraints, obviously, ore prices going up, but also sort of the chlorine side of things, (inaudible) out there sort of shuttering as much as 15% of their capacity. Could 2022 be a year where you see major differences between the integrated TiO2 producers versus the nonintegrated ones? And again, I'm thinking about the flexibility that you guys have in sort of toggling between a whole range of ores. So could this be a year where the nonintegrated -- feast or famine relative to whether you're integrated or not?

So listen, we like our book of business. We like our supply on all of our raws. We continue to work across both chlorine and ore to be well supplied through time. So I just say -- and then we like our cost curve -- where we are on the cost curve. And as we debottleneck capacity, we're seeing opportunities to do that at some of our lower cost plants as well. So overall, Hassan, I remain very encouraged about where we are in our TiO2 journey. Clearly, we're starting the year slightly ore constrained and that's something we'll work our way through.

Yes. The only other thing, Hassan, I would add is, look, I mean, if you look at the quality of our operations, the technology in TiO2, I wouldn't exchange that for anything else. At the end of the day, what matters is return on capital. And with our technology, we believe we have very attractive return on capital in the broader scheme of things. So we take our pride on that.

There are no further questions at this time. Mr. Mark Newman, I turn the call back over to you for some closing remarks.

Yes. Thank you. And listen, we are very excited about the momentum we have in all of our businesses. We are starting the year with very strong customer demand. And our focus this year will be continue to grow earnings and to throw off significant free cash flow as we grow revenue and earnings going forward. So thank you for your continued interest, and we look forward to speaking to many of you today.

This concludes today's conference call. Thank you for your participation. You may now disconnect.