Huntsman Corp (HUN) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Huntsman Corporation 2006 first quarter earnings call. [OPERATOR INSTRUCTIONS] I would like to turn the call over to John Heskett, Vice President of Corporate Development and Investor Relations. Please proceed sir.

Thank you operator and good morning to everyone. As the operator mentioned, my name is John Heskett, I am the Vice President of Corporate Development and Investor Relations for Huntsman Corporation. Welcome to Huntsman's investor conference call for the first quarter of 2006. Joining us on the call today are Jon Huntsman, our Chairman and Founder, Peter Huntsman, our President and CEO, Kimo Esplin, our Executive Vice President and CFO and Sean Douglas our Vice President and Treasurer. A recorded playback of this call will be available until Midnight May 5. The recorded playback may be accessed from the U.S. by dialing 1-888-286-8010 and from outside the U.S. by dialing 1-617-801-6888. The access code for both dial-in numbers is 14877165. A recording of this call may also be accessed through our Website.

Before we begin our discussion of earnings, I would like to say a few words about forward-looking statements. Statements made during this conference call that are not historical facts are forward-looking statements. Such statements are considered to be predictions or expectations that are subject to a number of risks and uncertainties.

Our actual results could differ materially based on a number of factors. Including and but limited to; future global economic conditions. Changes in the prices of our materials and the energy we consume in our production processes. Access to capital markets. Industry production capacity and operating rates. The supply/demand balance for our products and those of competing products. Pricing pressures. Technological developments. Changes in government regulation. Geopolitical events and other risk factors.

In addition, completion of transactions of the type described in this release is subject to a number of uncertainties and to the negotiation and execution of definitive financing agreements with the parties. In closing, it's subject to approvals and other customary conditions. Accordingly, there can be no assurance that the transactions will be completed. Please refer to our most recent Form 10-K for a more complete discussion of the risk factors applicable to our business and our Company.

Turning to earnings. I would like to point out that as I summarize earnings, I will be referring to adjusted EBITDA. Which is EBITDA which has been adjusted to exclude the impact of discontinued operations, restructuring, impairment and plant closing costs, on the sale of accounts receivable, net gains and losses arising from the early extinguishment of debt and charges and credits related to changes in accounting principle. In the first quarter of 2006, we recorded a net total of 11.1 million of such costs and expenses. And in the first quarter of 2005, we recorded a net total of 243.3 million of such costs and expenses.

We focus on adjusted EBITDA from a management standpoint, as we believe it is the best measure of the underlying performance of our operations. And we have received feedback from many of you in the investment community that this is how you prefer to look at our business. A reconciliation of both EBITDA and adjusted EBITDA to net income can be found in our first quarter earnings release, which has been posted to our Website. Today, Huntsman Corporation announced first quarter earnings as follows. Huntsman recorded adjusted EBITDA from continuing operations of 292.3 million. This compares to adjusted EBITDA from continuing operations of 490.4 million in the first quarter of 2005.

Net income available to common stockholders for the first quarter of 2006 was 69 million, or $0.30 per diluted share. This compares to net loss available to common stockholders for the first quarter of 2005 of 99.5 million or a loss of $0.43 per diluted share. Excluding the after-tax impact of 7.6 million related to restructuring and plant closing charges and discontinued operations, adjusted net income from continuing operations was 76.6 million or $0.33 per diluted share. This compares to 187.5 million of adjusted net income from continuing operations or $0.81 per diluted share for the comparable period in 2005.

Lower results on an adjusted EBITDA basis as compared to the previous year were primarily attributable to lower results in our base chemical segment, where adjusted EBITDA dropped from 164.3 million in the 2005 period to 20.7 million in 2006. With most of the decline occurring in the European portion of our base chemical business. Results were also lower in our polyurethane segment. While corporate and unallocated costs declined.

I'd now like to briefly outline the performance of each of our six segments. Polyurethane's recorded adjusted EBITDA of 157.5 million for the first quarter of 2006, which was 7.5 million higher than the fourth quarter but 32.7 million lower than a year ago. We continue to see solid market conditions for MDI globally. Volumes in the first quarter were flat, as compared to the fourth quarter and down about 5% compared to a year ago.

We got off to a somewhat sluggish start in January and February in some of our construction related segments due to cool weather but the business recovered nicely in March. Asia was also softer than a year ago. Pricing for MDI has softened a bit. Down about 1.5% from the fourth quarter and about 2% in local currency terms as compared to the first quarter of last year. Primarily due to new capacity expected in Europe and Asia this year.

Despite all the turmoil surrounding MTBE, our PO and co-product MTBE business posted a good quarter. Propylene oxide volumes and pricing were stronger than both the fourth quarter of last year and the previous year. And MTBE “C” factors remain volatile, ranging from high's somewhere north of $0.50 a gallon to $0.10 a gallon. But averaged $0.27 for the quarter, which was higher than the $0.22 per gallon average in the first quarter of last year.

Advanced materials recorded adjusted EBITDA of 37.2 million for the first quarter of 2006. This was up from 19.7 million in the fourth quarter. In advanced materials, volumes rebounded nicely, up approximately 16% from the levels we experienced in the fourth quarter. They were also up about 6% as compared to a year ago. This was partially offset by some softening in price.

Performance products recorded adjusted EBITDA of 46.6 million in the first quarter of 2006, as compared to adjusted EBITDA of 2.7 million in the fourth quarter and 67.9 million a year ago. Adjusted for the impact of the hurricanes on the fourth quarter results, adjusted EBITDA was flat on a sequential basis. Ethylene glycol conditions continued to deteriorate as EBITDA from EG was a negative 9 million in the first quarter, as compared to positive 17 million in the first quarter of 2005.

Excluding the impact of ethylene glycol and the related ethylene oxide volumes from both periods; adjusted EBITDA in this segment in the first quarter improved by 29% on last year's levels. Average selling prices were higher by 13% as compared to a year ago. As we have moved prices up in virtually all of our product lines in the segments, of course, with the exception of EG. Segments recorded adjusted EBITDA of 35.8 million in the first quarter, which was up about 12% as compared to the fourth quarter.

Volumes improved by 4%, as compared to last year as industry demands have strengthened and we have picked up some orders as a result of the DeLisle outage. Prices in dollar terms increased by about 3% or about $50 a metric ton as compared to the fourth quarter, as we were able to implement a portion of the October announced price increase in the first quarter. Polymers recorded adjusted EBITDA of 38.7 million in the first quarter of 2006, which was up 7.3 million or 23%, as compared to the fourth quarter. Volumes recovered nicely from fourth quarter levels with polypropylene and polyethylene up by 11% and 14% respectively.

Base chemicals recorded adjusted EBITDA of 20.7 million in the first quarter of 2006. A slight increase as compared to 17.8 million in the fourth quarter but a decrease as compared to the 164.3 million in the first quarter of 2005. Results continue to be very soft in Europe in both the aromatics and olefins businesses, where raw material costs were higher and prices settled lower. Results in North America were impacted by the unplanned outage at Motiva's neighboring Port Arthur refinery during February.

With that, I would like to turn things over to Kimo Esplin, our CFO, for his comments on our financial outlook.

Thanks, John. A couple of items. On April 18, we announced the amendment and expansion of our accounts receivable securitization program. We have replaced our existing 370 million U.S. dollar equivalent MTN and commercial paper based facility with the new three year 500 million U.S. dollar equivalent commercial paper conduit program, with J.P. Morgan as our arranger. Outstanding borrowings under this new facility are priced at LIBOR plus 60, which is about the same weighted cost as the old program. And this still represents the lowest cost financing available to the Company. A portion of the net proceeds from this new facility was used to repay 50 million of outstanding bank term loans.

As most of you are aware, during the quarter , we announced two significant transactions. First on February 20, we announced that we had had entered into a definitive agreement to acquire Ciba Specialty Chemicals' textile effects business for an aggregate purchase price of approximately 332 million Swiss franks. We currently expect this transaction to close in the third quarter. The textile effects division continues to perform well. Yesterday, Ciba reported that the textile effects business' first quarter revenues were up approximately 6%, as compared to last year, to 322 million Swiss. While EBITDA was up 36% to 22.1 million Swiss.

We believe the business has benefited from a more stable marketplace this year. And the impact of some of the restructuring activities that Ciba had implemented in late 2005 are clearly showing up in the bottom line, as costs are lower. We are very excited about the addition of this business to our portfolio of differentiated businesses. And beginning in the third quarter, we expect to begin reporting this business with our existing advanced materials business, as a new advanced solutions segment, which will have over 2 billion in revenues, 24 manufacturing and formulation facilities and over 6,000 employees.

Second, on April 5, we announced that we had entered into a definitive agreement to sell certain of our butadiene and MTBE assets in North America to Texas Petrochemicals LP for approximately 269 million. We are moving aggressively towards completion and we would expect this transaction to close late in the second quarter. Given this timing, we would expect to use the proceeds from the sale of our C4's business to fund the acquisition of the Ciba business and provide for approximately 80 million in further debt reduction. As we mentioned on our last call, the combination of these two transactions is expected to be immediately accretive to the 2006 earnings per share.

In fact, pro forma for these transactions, EBITDA would have been 16 million higher and our debt would have been $80 million lower in the first quarter. So, we view this as a good tradeoff. This is completely consistent with our strategic direction. We want to take our portfolio, that is selectively investing in the differentiated ends of our business while opportunistically pursuing attractive transactions to reduce our exposure to commodities.

You may have noticed from our earnings release, that our debt levels at March 31 were a bit higher than a year ago. This is primarily due to the typical seasonal build in net working capital that we experienced in the first quarter.

Finally, a few thoughts on the second quarter directional earnings guidance. In our commodity segments, we believe pigments will show improvement over the first quarter, as second quarter trends -- excuse me. We believe pigments will show improvement over the first quarter, as second quarter trends tend to be stronger from a seasonal perspective. And our expectation is that announced price increases should be further implemented during the quarter. In base chemicals, results are expected to improve in both the U.S. and Europe, as we expect olefin margins in North America to firm. While in Europe, prices for ethylene and propylene settled up by 80 Euros a ton and 40 Euros a ton for the second quarter.

However, we are cautiously watching the higher raw material costs, particularly in heavy naphtha, which could impact margins, particularly in Europe. In polymers, EBITDA is expected to be consistent with the first quarter. The polymer segment has been relatively consistent over the past 10 quarters, ranging between roughly 35 and 50 million EBITDA. Driven by a very solid propylene business. In our differentiated segments, polyurethanes is expected to improve slightly from the first quarter levels, as the second quarter tends to be seasonally stronger than the first, particularly in MDI.

In performance products, we are expecting to see continued margin expansion. While in advanced materials, we would expect that recovery of profitability will continue back towards the levels we experienced throughout much of 2005. Generally speaking, our businesses were a bit soft in January and February but recovered nicely in March. And those trends appear to have continued into April. I think we can expect to see adjusted EBITDA improve significantly from the levels that we experienced in the first quarter.

Finally, as it relates to the hurricane damage and business interruption insurance coverage, we are in the process of submitting a claim to our insurance carriers. And believe that our policies will allow us to collect up to $40 million toward our losses from the storms last fall. As well as the Motiva outage in February. We would expect to receive these proceeds in the second half of the year. Also, while we are on the topic of insurance, we are in the process of renewing our global coverage. And indications are that given the magnitude of the claims in our industry last year, premiums are expected to increase dramatically. Peter?

Kimo, thank you very much. First quarter represented a solid start to 2006, especially when considering the hurricane effects we suffered in the fourth quarter. With the exception of the outage in February, which we experienced at our Port Arthur ethylene facility, the first quarter really reflects the first sustained period of time, which we have enjoyed relative stability from an operating perspective since early 2005. I think this is true from an industry perspective as well. The second half of 2005 was characterized by a number of external shocks to the industry. Particularly -- at the expense of hurricanes Rita and Katrina.

It is good to have this behind us and I would characterize first quarter as one of transition back to more normal conditions. The profitability of our business recovered nicely, as we expected. And I believe that we are poised to see continued growth throughout 2006. There certainly are some risks out there, particularly with oil at over $70 per barrel and what that means for the macro global economies. But from where I sit today, we are very optimistic.

Let me spend a few minutes talking about several of our key business segments. Polyurethanes continues to perform very well. Producing about 50% of our total EBITDA in the quarter. The volume growth was flat compared to the fourth quarter but still at a good level for us, as we operated our plants well above 90% in terms of utilization. We experienced a somewhat soft January and February in Asia in some of our construction related segments, likely due to cool weather patterns. But demand rebounded very nicely in the month of March, particularly in Asia, as the Chinese New Year came to a close.

Our composite wood business continues to exhibit phenomenal growth, as volumes in the first quarter were significantly higher than the last year. Pricing for MDI, as we expected, has softened a bit, down about 1.5% versus the fourth quarter. As we indicated in our past calls, there is some new MDI capacity coming online. Yanti, a local Chinese producer, is in the process of bringing up a new facility in China.

We think this may be operating a substantially reduced rate due to some feedstock limitations. And Bordescem has advertised a small plant in Eastern Europe. And of course, our JV with BASF will start up in July. Pricing will soften a bit. In fact, it already has, as these producers start premarketing a product in China and Europe. But if MDI continues to grow in line with this historic 7% to 8% trend, this new capacity should be absorbed into the market fairly quickly.

In pigments, we've continued to see prices edge up after a couple of quarters of declines in early 2005. If you recall, there was $150 per metric ton global pricing increase announced in October of last year. And we were able to implement approximately $50 per metric ton in the first quarter. In January, all producers announced an additional $100 to $150 per metric ton depending on the region, which we intend to begin implementing in the second quarter. This should result in improved profitability.

Industry fundamentals in the first quarter continued to be strong. Demand hs recovered from last year's levels. In fact, our volumes in the first quarter were up 4%. And we believe that global coatings demand feels pretty solid. Producer inventory levels appear to be hovering around 50 days, which is well below the levels we were seeing mid last year. We understand that DuPont has brought up its DeLisle facility back on line, so this doesn't appear to have caused any major disruption in the marketplace. We are very encouraged that the second quarter will validate, which everyone hopes is shaping up to be a very good paint season in 2006.

We are very pleased with the performance of our advanced materials segment in the first quarter. As you recall, this segment posted weak results in the fourth quarter of last year but recovered nicely in the first quarter as EBITDA improved to $38.7 million, as compared to $19.7 million in the fourth quarter. The big driver was volumes, which were up 16% as compared to the fourth quarter and 6% as compared to a year ago. This growth was not only evident in our basic coatings, constructions and adhesives end markets but also in our downstream aerospace, wind, power and electronics market groups.

Indicators are that this growth will continue into the second quarter. Probably not at the accelerated rate we saw in the first quarter but hopefully well in excess of GDP growth rates. This should put our advanced materials segments quarterly EBITDA back to levels above $40 million, which is similar to what we saw throughout much of 2005.

With respect to our performance products business, we continue to see solid growth in our amines, maleic anhydride and surfactants businesses, in spite of the ethylene glycol markets' reversing trends this past year. We more than made up for the falling ethylene glycol EBITDA with growing margins and volumes in these various businesses.

Base chemicals, to be very honest, has been disappointing. Conditions in the first quarter continue remain soft in Europe, even softer than we anticipated. As we mentioned in our last call, prices for our ethylene and propylene had settled down for the first quarter by 40 Euros per metric ton and 25 Euros per metric ton respectively. At the same time, we saw the price of naphtha, which is our primary raw material and correlates closely with crude oil, increase from a low of about $475 per metric ton in November to over $550 per metric ton in January, which resulted in a margin squeeze.

As we look forward to the second quarter, prices will be up. As of late March, contract prices for ethylene and propylene, for the second quarter settled up 80 Euros per ton for ethylene and 40 Euros per ton for propylene. These by the way, represent record price levels for the region. But given the recent spike in crude oil prices, the magnitude of the margin improvements will be less than we would have expected a month ago. In the U.S. region, market conditions were pretty decent in the quarter. However, our large cracker in Port Arthur was offline for several weeks in February, as the neighboring Motiva refinery, which supplies much of our steam requirements took their plant down for unplanned maintenance due to a hurricane related start-up. So, we lost some production. Unfortunate, but something that is out of our control.

We brought the unit back up on the 20th of February and things seem to be running fine. But we lost about three weeks of production in the process. We are expecting margins to firm up a bit in the U.S. in the second quarter and the plant appears to be running well. All in all, base chemical profitability will improve in the second quarter as compared to the first. But the extent of this improvement will likely be dependant on the trends in energy and feedstocks over the next couple of months.

In summary, the business got off to a slow start in February and March particularly on the volume side of things but I would characterize March as very strong. Now, we haven't closed the books in April. But our sense is that the positive momentum that we saw in March will carry over into April, which gives us quite a bit of confidence that second quarter will be substantially better than the first from an EBITDA perspective.

Finally, before turning the call over to questions I would like to briefly update you on our progress as it relates to some of the strategic actions we announced in our last call. We are on track with our planned acquisition of Ciba's textile effects division. And expect that this transaction will close early in the third quarter. As Kimo indicated, the business continues to perform in the first quarter, as both revenues and EBITDA was well above the levels of last year. As we discussed in our last call, our plan is to quickly integrate this business into our existing platforms around the world. And we would expect to extract meaningful synergies, not only in the back-office and support functions but also in the marketplace with our customers and suppliers. After having spent much of last week in Basel with the textile effects team, I'm happy to report that our expectations for creating value -- by bringing our two organizations together are likely to exceed our original expectations.

On the divestiture side, we now have a definitive agreement with Texas Petrochemicals for the sale of our butadiene MTBE facility in North America. And we expect to move forward to close very quickly. Hopefully by the end of the second quarter. As Kimo mentioned, the combination of these two transactions is expected to be immediately accretive to our earnings per share in the second half of 2006. It is also very consistent with the portfolio shift from commodities to differentiated that we have been pursuing and will continue to pursue.

In fact, if you pro forma in the textile affects acquisition and you pro forma out the butadiene sale, our differentiated business contributed over 50% of our total revenues and almost 70% of our total adjusted EBITDA in 2005. Ten years ago, the opposite was true, with almost 75% of our portfolio in commodities. And I think you can expect that this trend can -- shift will continue.

Finally, as it relates to our plans to separate our commodity business from our differentiated business, we have received very clear guidance from our Board of Directors. And as a management team, we continue to aggressively pursue all of our available options to enhance shareholder value. As we indicated in our last call, these include a spinoff of our base chemicals and polymer segments into a separate Company or a sale of certain of these assets to third parties. We also indicated that this process will take time, likely between six to nine months.

We remain convinced that this bifurcation is the right step to improve shareholder value. I think Huntsman's performance in the first quarter was a good indication of this. Our differentiated business performed very well, exceeding our expectations. While our commodity businesses continued to exhibit the cyclical and volatile trends in profitability that have become commonplace over the last several years. Very frustrating for us as a management team, as we think this volatility has overshadowed the real strength of the business, our differentiated portfolio.

This past week I had the opportunity to visit our differentiated business groups in India, Singapore, Malaysia and China. In the next 18 months, we will achieve over $2 billion in sales in this rapidly growing market, representing over 20% of the global sales of our differentiated portfolio. As we add capacity across the board and strengthen our customer base in this vibrant market, we will continue to see better than GDP growth globally and solid, less cyclical earnings in our core businesses.

In fact, we saw volumes across our differentiated businesses worldwide grow 9% from fourth quarter '05 to first quarter of '06. Before we open the call to questions, I believe our Chairman is still on the line. He has a speaking engagement here at a graduation at a university in Utah. And perhaps he would like to share any thoughts before we turn this over to questions.

Thank you, Peter, very much. I would like to just indicate to those of you on the phone that our Board of Directors and our officers, are firmly committed to enhance shareholder value. We know that our stock is undervalued and we don't like it. We have never been more excited and more enthused about the direction of the Company than we are today. And as our CEO, Peter Huntsman has just explained to you, we are making tremendous progress in overcoming some of the obstacles that have held down our price.

So, We are doing everything possible to enhance the value for our shareholders. And our Board of Directors is enthusiastically supportive of all the things that we are doing on behalf of our shareholders. I would just like to thank our officers and our wonderful employees throughout the world, our associates. We have the finest management team in the world in the chemical business and the finest chemical business.

Wherever we go, this last week we were in India, we've been in China recently, we've been throughout the world several times in the past few months. But wherever we go, we are complimented for our outstanding, aggressive and very experienced management team. And I want to take this opportunity to thank them very much and to thank you as our shareholders. Thank you.

Thank you, Jon. Operator, I think we are now ready to turn the call over to questions.

[OPERATOR INSTRUCTIONS] And our first question comes from the line of Mike Judd with Greenwich Consultants. Please proceed sir.

Good morning. Thanks for taking my question. Just some questions about MDI pricing heading into the second quarter. Some of the trends there? And then secondly, a tax related question. It looks like the tax rate was a little lower than I anticipated in the first quarter. Should we assume that for the rest of the year the tax rate will be around 15% or so?

We see MDI pricing. And I'm not going to get into details because obviously, it's very much on a regional basis, it's also on an application basis. There is not an MDI price out there, as you would commonly see in basic polymers or something. But we do see demand picking up in the second quarter. And I think that if we were to see MDI prices fall, it would be in similar magnitude to that we saw in the fourth -- in the first quarter of the 1% or so. But again, that will vary by application, by region on a global basis.

Bearing in mind that as these new producers start up, typically with -- virtually all petrochemicals, it is not necessarily the capacity that is physically in the market. It is the deals that are cut before the capacity comes in the market. So, I think that we are seeing today a lot of the downward pressure by people that are out there selling product. Even though that product may not yet be in the market per se. So, I think that -- I read some of these reports on MDIs of a year ago expecting a massive cratering and so forth to have occurred this year with Yanti and Huntsman and others coming on. I don't just don't think that that massive cratering has materialized. Nor will it with demand where it is.

Michael, in terms of taxes, we did guide folks for the full year on our last call at 15% to 20%. We did come in a little short of that here in the first quarter. I think it would be reasonable to expect maybe for the balance of the year we would be at the lower end of that guidance range that we gave last quarter.

And how is that impacted by Ciba's textile business?

Well, I think given the magnitude of the Ciba business relative to our overall business, there wouldn't be much impact.

Thank you.

Our next question comes from the line of Don Carson with Merrill Lynch. Please proceed.

Thank you. A couple of questions. First on MTBE, of your total MTBE, how much is in PO byproducts versus how much is going in the C4 business to Texas Petrochemicals? And specifically, how big was MTBE in the quarter and what are you doing with your MTBE business now? Are you exporting that product? Are you converting it to other chemicals, if you can elaborate on that? And then finally, on the performance products side. At what point do you think you'll have enough growth in your EO derivatives that you shut down the glycol operation?

Okay. Let me take a stab at the PO MTBE -- excuse me the MTBE. About 60% of our total MTBE comes out of our PO MTBE facility. And about 40% of our total MTBE, as of today, comes out of our butadiene business that will be sold to Texas Petrochemical. So upon completion of that sale, our volumes of MTBE sold into the marketplace will drop by about 40%. Obviously, the MTBE that we produce is a byproduct of propylene oxide, it's substantially cheaper to produce, as it's produced by byproducts and is not an on-purpose product. So the MTBE that we will be keeping, the 60% we are keeping as a byproduct of the PO facility, will be the more profitable of the two streams that we have. Of the MTBE that we will be keeping out of the propyleneoxide facility, roughly about 60%, just over 50% of that, is exported to Latin America on a pretty much on a long term basis. The other 40% is tied up in contracts for the next year or so. I would say those are akin to take-or-pay contracts. And if you look into the first quarter, roughly about just over $30 million of our EBITDA came from MTBE.

And Peter, that was -- the 30 million was for the 100% of your MTBE?

Excuse me, the 30 million, that was PO MTBE. and again, the propylene oxide pound for pound is far and away the most profitable.

And what are the economics like on the Latin American business? If we look at Gulf Coast margins, what should we assume that you are netting post any transportation costs?

I think that you could say that the finished market price is very, very close if not right on to the U.S. And then you have to subtract a small amount for freight. But that is a lot better than shipping it to Asia or Europe.

Don, your second question had to do with growth in your performance products yield derivatives and what does that mean for the long term sustainability of your ethylene glycol units. Certainly, we are disappointed with the glycol business. Had a very, very soft first quarter. The outlook over the next several years for EG is poor. And we are looking at a number of options related to that unit and I think we would like to minimize the production of ethylene glycol going forward.

Thank you.

Our next question comes from the line of Bill Young with Credit Suisse.

Good morning, gentlemen. In epoxies or advanced materials, why are prices so weak in that segment?

Well, Bill, if you look at year-over-year pricing in our epoxies group, it was down a bit but most of that was due to exchange. I think maybe 8% down in terms of dollars but in local currencies down 1% to 2%. It continues to remain, particularly in some segments, especially in Asia a pretty competitive market.

And Bill, again, that is another product that when we talked about epoxies and you are talking about literally well in excess of 1,000 products and hopefully in excess of 1,000 different prices. I think when we look at something like our base liquid resins, the more commoditized end of that business, it will have a disproportionate movement on the overall pricing of that. I think that as we look at the applications that are going into the aerospace and into the wind and into a lot of the carbon formulations and so forth, we are not seeing the sort of pricing competitiveness on the downstream formulated businesses that we are up in the bulk liquid resins.

Now, you mentioned about your spinoff or possible sale of base chemicals and polymers. How much interest is there still out there in people looking at Huntsman Corporation as an overall type of purchase? Last thing I heard from this is, you didn't feel the price was adequate but you've gotten some suitors. I just wondered if there are still suitors out there somewhere.

I would just note that -- I am not going to, obviously, get into disclosing any discussions that we have had. We are exploring both options. One of a bifurcation of the businesses. And the other, the possible sale of all or parts of the base chemicals or polymers business. And to my knowledge, Bill, we have not made any comments about the viability of a sale of those particular assets.

So, what you are saying, there is not that much interest right now at the right price in buying the Company as a whole?

Well no, I am saying that as it pertains to the base chemicals and the polymer businesses, we have not made any comments as far as what is out there as far as a possible sale.

Okay. One last thing. I noticed in your press release that your average selling prices moved up 13% in the performance products area, realize there is a lot of margin pressure. But which products are enjoying that kind of a price hike, particularly in view of what's going on in ethylene glycol?

Bill, if you back ethylene glycol out, the amines business is the big driver there. That has done very well from a pricing standpoint. Our maleic anhydride --.

Maleic anhydride is another product that has been done very well in that particular business. And in specialty amines, we find that we've actually got some rather challenging shortages on a global basis. Until we start up our polyetheramines facility in Singapore, we are going to be very tight in some of those products and grades. And so, I think that we continue to be very excited about that end of our business. We continue to see improvement in our surfactant businesses. Both because of restructuring our costs in those businesses, bottom slicing unprofitable customers in those businesses and focusing on more than just personal care applications. So, it really is across the board but mostly focused on amines and our maleic businesses.

Bill, just to give you a little bit of flavor, maleic prices were up about 26% relative to last year. And amines is a family, a collection of products, but anywhere from 8% to 20% depending on the product grade.

Our next question comes from the line of P.J. Juvekar with Citigroup.

Peter, you described somewhat of a soft landing scenario for MDI. Can you talk about what could go wrong with that thesis? What are the risks when you look at the scenario?

The risks of MDI?

The risks of MDI not having a soft landing but maybe having a hard landing.

I think P.J., I would be most concerned about something that takes place in the overall economics of the economy. I think that our customer base there is very diversified. Going everywhere from athletic footwear, to construction, to installation, to automotive, to appliances, and I think that in a product that is diverse as that, that it is seen on the last 10 years an average growth rate of 8% per annum; it really has to be the overall economic trend. You have this production that is coming on and you have GDP in North America, Europe, Asia that slows down to low single digits to zero. I really cannot put my finger on a particular application and say, that it is because European automotives is going to stop selling cars and that is going to crush the business. There just is not one major application out there that would have me concerned.

And my second question is a bit more strategic. You look at your commodity businesses, you saw a significant decline. And we are supposed to be close to the peak. The European business has continued to underperform. If you separate these businesses and spin them off, do you think they can survive on their own?

Yes, I do. I think, that as someone -- speaking as a shareholder in both of those businesses, in the event that we do split those off, I do think that those businesses, relative to their regional peers, are very strong businesses. And I think unlike our differentiated businesses, you can be a very strong regional player. I look at somebody like Lyondell, who I think is a very fine company, very good earnings this last quarter. A very strong regional player. And I think they've done very well.

I think In a product like MDI, I don't think you can be a single regional player. You have to be global in epoxies. And we are finding out more and more in amines and textile effects, that manufacturing, your customer base moves around the world. I think you have to be global. As I look at our base chemical business, I think that we have among the lowest cost ethylene facilities in Europe. With the addition of our low-density polyethylene plant there, the combination of those two will make that one of the lowest cost, if not the single lowest cost, integrated facility in the European market, and I think our business is here. As we look at our margin pound for pound in our polymer business; polypropylene, polyethylene, I think it is very strong in North America.

So you can survive the next downturn?

Yes.

And just for housekeeping, Where does TiO2 fall? You put TiO2 in commodities, right?

I would put TiO2 in differentiated side of our business. I think that it has -- while we don't see the sort of growth in TiO2 that we are seeing in MDI, we do say very stable earnings platform there. I continue to think that there is more that can be done with that business from a technological basis. We have, I believe, one of the very best chloride technologies in the industry. I think over the course of the next couple of years, we have an opportunity to take what has been a good business and to make that even better. And I think that the cash flow of the business would provide an excellent foundation on the differentiated side of the business.

I am just a bit surprised that without the TiO2 you still think your base chemicals and formulas business is the lowest cost and really can survive a downtown.

Well, it has got roughly $6 billion in sales.

Yes.

And you have to look at each of the pieces, P.J. As Peter said, you look at third party studies. Our polymer business in the U.S. has some of the best margins in their respective products. And our European business is going to be one of the lowest costs in the region. There are lots of public companies in the chemical space, in commodities, that are much smaller and don't have that kind of cost profile.

Okay. Thank you for the long answer. Appreciate it.

Thanks, P J.

Our next question comes from the line of Sergey Vasnetsov with Lehman Brothers.

Peter, you mentioned that your second quarter is expected to be better than the first quarter. And it seems to me, that in the absence of hurricanes and energy spikes, actually first quarter could be the lowest price on an EBITDA basis of this year. What are your thoughts?

Sergey, my thoughts are, yes, I would agree with that. Minus a jump up in energy prices that slows the overall economy or getting hit with two hurricanes like we did last year, I think that as you look at our businesses across the board, we continue to see good growth. There is very little new capacity coming on. The capacity that is coming on in the Middle East, is obviously going to be pushed out and delayed for a number of reasons. The least of which is not -- is just the shortage of labor to start a number of these facilities up. And touring through India and China the last couple of weeks, I was amazed to see our business and virtually all of our competitors and everybody there is suffering from labor shortages, which I thought was somewhat ironic. But I see '06 shaping up, short of any external forces, I see '06 shaping up to a very strong year and I see '07 continuing into that.

And so on basic chemicals, by my estimates it was EBITDA negative in Europe. If you had your LDPE plants running today, could you have your results in a positive territory by putting it in a place better this quarter? And also if you can update us your status of polyethylene plant?

I am not sure I understand your question. You're asking how we would be in the first quarter or second quarter if we had the LDPE plant in Europe?

If you had your LDPE plants, and so you would have avoided losses on ethylene plus made some money on polyethylene, could you be as much as 40 million better this quarter?

I will answer that question just purely from an emotional basis, which is difficult because I haven't any numbers before me. As it relates to the performance on LDPE, I think that we have got two problems with our European business. The first is the volatility of naphtha. As you factor that into quarter stable -- stable quarterly pricing on ethylene propylene and offsetting with extremely industry record volatility we're experiencing with naphtha. And our dependency on cryogenic export oriented ethylene. So, now only are we at the mercy of the merchant markets but we have to cryogenically ship that ethylene out of the Wilson plant to those markets. If we had the low density facility up and running, my recollection is we would save about $30 million per year just in export costs on the ethylene. And that's not assuming that we made any more on the polyethylene side. I think polyethylene margins versus spot ethylene prices today, that business would be doing quite well. It would substantially improve the profile and the risk of that business.

That's what I thought. And lastly, on status of your LDPE plant start up?

We continue to remain on an early '08, late '07 sort of a start up. Probably early '08.

Thank you.

Our next question comes from the line of Frank Mitsch with BB&T Capital Markets.

I wanted to go back to Bill's question with respect to the strategic options. I understood the answer to be that you are looking at two areas. One is a bifurcation of the Company and the second is to sell the basic businesses in whole or in part. And I guess you'd throw glycol into that as well. And I thought there was maybe trying to talk about selling Huntsman overall and any update on the interest level in the overall Company being sold to a third party. Can you provide any color on that as a strategic option?

The direction that we have from the Board. First of all, nice to talk to you, Frank. The direction that we have on our Board and they are supportive of our strategy at this point. It's what we announced in the last quarterly, and that is let's focus on the growth across the board. And let's see if we can maximize the value to our shareholders in a differentiated business and maximize the value to our shareholders in the commodity business. And so, we are moving down that line to bifurcate those businesses. And that's where we are spending our time.

And Peter, I think you mentioned it would take six to nine months to go along this path. Is that six to nine months from the discussion back in early February or from today?

I would say really from today. I would assume that this would be done by or before the end of the year.

Terrific. And then lastly, obviously you made the acquisition of the Ciba businesses, should we look for Huntsman to be active in the M&A markets in terms of a buyer?

In terms of a buyer for our entire business?

I apologize, in terms of Huntsman being a buyer.

Being a buyer. I think, frankly, that we will continue to be looking at small bolt-on acquisitions. Certainly, if we can find something that would fit our particularly differentiated portfolio that we could buy for less than working capital, I think we would be very interested in something like that. But largely, I would like to see something that is a smaller bolt-on acquisition that is not going to derail us from our overall objective of reducing debt in this Company. And something that could be easily integrated, could add some technology to our business. But I really do think first and foremost that our objective here is debt reduction.

Our next question comes from the line of William Matthews with Canyon Capital.

Peter, to that point, the question I have is basically, the net debt reduction over the first quarter was pretty much nonexistent. The goal outlined, I think previously has been 2 billion of net reduction by the end of '07 ex-IPO proceeds. Which I think would need -- would require another 1.5 billion from here. Are you guys still comfortable with that number?

I still am confident that we can reach that number by the end of '07. As you look into quarter one, I will ask Kimo to make comments there. But we saw an increase of our working capital at the higher raw material prices in quarter. We've got a lot of property taxes and so forth, a lot of one-time payments that we have to be making for the year, made in quarter one. I am not sure it is necessarily an accurate quarter to be annualizing over the entire time. But we are still very much committed to the overall debt reduction.

So, exactly, Bill. I think the 2 billion number by the end of '07 is the objective of management. We can take that through running these businesses and generating that free cash flow or we can sell those base chemical businesses and enjoy the proceeds from those businesses today.

Great. Thank you.

Our next question comes from Laurence Alexander with Jefferies.

First, on advanced materials can you discuss with relationship to the pricing trends how much leverage you might have for margin expansion over the next four to six quarters?

I am sorry. We don't have a very good sound system. I missed the very first part of your question.

With respect to advanced materials pricing, how much margin expansion do you think you can get over the next four to six quarters? Are there any product lines where you think you're in a very good position to start increasing margins, start increasing prices?

Well what -- we are going to be increasing -- pushing for price increases across the board. I think that again, we are seeing very competitive action in the markets for our base liquid resin. You remember over the course of the last year or so, we have been pulling out of a lot of our base liquid applications and production in that particular business. So, we haven't seen a very strong tonnage growth in our advanced materials businesses because we have been pulling out of some of those. But when you look in our further downstream businesses, I do believe that we have opportunities. Look at aerospace, I think it's Airbus and Boeing both start actual production and mass scale production of the next generation of aircrafts, the 380 Airbus, the 787 and some of the 350 Airbus. I think that we've got excellent opportunity there to continue to push pricing through.

Yes, I'd just add that in that business, volumes aren't huge. I think you are going to see top line growth. But -- for example, in the do-it-yourself business, we've just launched a brand new program in China and India. And of course, those are small tubes that are sold at the retail level. But we are expecting top nice line growth in those sorts of businesses. Likewise in our other adhesives businesses, it is not huge volumes but it is going to be nice on the top line.

And just secondly, quickly, what is the currency impact on earnings in Q1?

It is pretty negligible. It is not -- I can't even remember, if it is 1 million one way or another. It is pretty flat.

Perfect.

Our next question comes from the line of David Begleiter with Deutsche Bank.

Peter, having your new MDI capacity in Caojing, how much is presold? And what will happen to your U.S. and European volumes when that facility comes onstream in July or June?

David, thank you for the question. Just to follow up from the last question the FX effect was $300,000 for the quarter. So, really, very negligible. David, I think that as we look at the Chinese material, we had originally planned to export a chunk of the material into the Southeast Asian markets. We now believe we can sell all of that material into the Chinese market. And at this point, it is presold. And we are aggressively working to make sure that the tonnage that today is heading to China, that will be coming back into the U.S. into various applications; in construction, insulation and so forth into the U.S.; will be able to be absorbed here. So, it really is a global effort as much as anything else. We see very strong growth in China. I don't think that there will be much of a problem placing that new tonnage in China. And I think we have got a good plan to bring what we are exporting today to China back into the U.S. markets.

And do you think margins will be similar to be existing margins in MDI for you guys?

I don't see any real heavy change there, David. I think that, again, as we look at that on a quarterly basis, pretty strong growth rates that we continue to have in that business; if those continue to keep up, all of this volume will be absorbed by the middle of next year.

And at that point, would you expect pricing to recover and to strengthen again for another four to six quarters prior to next capacity expansion?

I would certainly hope so.

Our next question comes from the line of Gregg Goodnight with UBS.

Gentlemen, good morning. Concerning advanced materials, if you annualize the quarterly results this year and compare them to last year, you get a potential difference of $10 million. My understanding was that project Coronado, which was mainly focused in this area was going to deliver savings in excess of that. So, would you comment on what see-through you are seeing with project Coronado savings in advanced materials and has that been clouded a bit by margins and volumes?

Project Coronado was across all of our businesses. In fact, we really started on the cost reduction effort, which is in excess of $100 million in the advanced materials business. But sort of before the other businesses, it was really was an '04/'05 cost reduction effort, early in '05. And so, I think you have seen a lot of the costs have already come out in advanced materials. I think that what you will see in this business now that we've got the cost structure right, going forward in '06, is top line growth. As opposed to just cost reduction efforts in that business.

Bear in mind Gregg, I think when we bought the businesses, the market conditions then were actually better than today, so far as our raw material costing and so forth. The basic liquid resins were making more money than today. So, we've seen the EBITDA in that business improve since we bought the business by over -- when you annualize where we are today over $100 million. And that is going into worse conditions market conditions today than we saw then, as far as raw material prices spiking and so forth. So, I think that we've more than seen the effects that Coronado has had on that one business segment and really across all of our businesses.

I will try to find it looking back through '04 then. Would you comment on the progress in your MDI expansion for -- 350 million MDI expansion for Rosenberg and Geismar, when is that going to be wrapped up?

That will be wrapped up next year. Again, those are incremental debottlenecks that we will bring online as we need the tonnage and as we are able to do it during turnarounds and so forth. That is not just one big project that we're going to shut our plants down and retube and so forth. Those will be coming on incrementally.

Certainly, by the end of next year, you say.

By the end of next year.

Okay. A final question, if I could. Since the IPO, if you look back, there has been a succession of issues including hurricanes and other unusual items. It appears the clouds are starting to clear for the second quarter. And I was wondering if you would comment, if the second quarter appears to you would be a reasonable proxy for the earnings power of your Company in its current format?

I don't particularly think so, Gregg. And it is just my opinion. I think that when we are battling with $70 plus crude oil, I think that that really does put a damper, especially on our base chemical business. I think on some of our differentiated business where you have raw materials making up 30%, 40%, 50% the cost of your final product, that has less of an impact.

But I think so long as you are seeing naphtha at record high prices, crude at record high prices; bear in mind that during the peaks of '88 and '95 when ethylene plants -- when 500,000 metric ton ethylene plants were cranking out $1 million a day EBITDA, we had substantially lower ethylene prices and polyethylene than we do today. And I don't know if this industry can really get its full potential on the base chemical side of the business with $70, $75 crude oil and $600 naphtha.

Now, that's not to say that we are going to have bad. But you asked me if it shows the full earnings power. I think that when you factor in; anything I read it's anywhere from $20 to $30 per barrel factor in crude oil because of the war in Iraq, the pending issues around Iran and just the crummy diplomacy that we've got internationally. I think that as you look at this, if we were dealing today with a $40 crude oil, I never thought I would hear myself say this, if you were dealing with a $40 crude oil, I think you would be doing substantially better in the base chemicals then.

Okay. Well, thank you for that perspective.

Thank you, Gregg. If there is any more questions out there, operator, we would be more than happy to take them.

There are no further questions in the queue at this time. I would like to turn the call back over to John Heskett.

Thank you, everyone. And thanks for participating in the call. We can be reached here in Houston or in Salt Lake for follow-up questions.

Thank you for your participation in today's conference, this concludes the presentation. You may now disconnect. Good day.