Huntsman Corp (HUN) 2009 Q1 法說會逐字稿

Thank you, everyone, for joining us for the first-quarter 2009 Huntsman Corporation earnings conference call. My name is Erica and I'll be your coordinator for today. At this time all participants are in listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (Operator Instructions). I would now like to turn the presentation over to your host for today's call, Mr. Kurt Ogden, VP of Investor Relations. You may proceed.

Thank you, operator, and good morning, everyone. My name is Kurt Ogden, Huntsman Corporation's Vice President of Investor Relations. Welcome to Huntsman's investor conference call for the first quarter 2009. Joining us on the call today are Peter Huntsman, President and CEO, and Kimo Esplin, Executive Vice President and CFO.

A recorded playback of this call will be available until midnight May 15, 2009. The recorded playback may be accessed from the US by dialing 1-888-286-8010 and from outside the US by dialing 1-617-801-6888. The access code for both dial-in numbers is 162-99-215. A recording of this call may also be accessed through our website.

This morning, before the market opened, we released our earnings for the first quarter 2009 via press release and posted it on our website, Huntsman.com. We also posted a set of slides on our website which we intend to use on the call this morning in the discussion of our results. Before we begin a discussion of our earnings I would like to say a few words about forward-looking statements.

During this call we may make statements about our projections or expectations for the future; all such statements are forward-looking statements and, while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the Securities and Exchange Commission for more information regarding the factors that could cause actual results to differ materially from these projections or expectations.

We do not plan on publicly updating or revising any forward-looking statements during the quarter. In addition, we all may also refer to non-GAAP financial measures. You can find a reconciliation to the most directly comparable GAAP financial measures in our earnings release posted on our website at Huntsman.com.

I would like to outline the format for today's call. I will summarize a few highlights of the quarter and then turn the call over to Peter Huntsman who will review the performance of our businesses in the quarter. Finally, Kimo Esplin will address certain aspects of our business including our debt structure, liquidity and working capital. At the conclusion of our prepared remarks we look forward to taking questions from you.

As we refer to earnings, we will be referring to adjusted EBITDA from continuing operations which is EBITDA adjusted to exclude the impact of discontinued operations; restructuring, impairment and plant closing costs; net merger associated gains; sale of accounts receivable; unallocated foreign exchange gains and losses; and extraordinary gains and losses related to the purchase of a business.

We focus on adjusted EBITDA from a management standpoint as we believe it is the best measure of the underlying performance of 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 EBITDA, adjusted EBITDA and adjusted net income from continuing operations attributable to Huntsman Corporation can be found in the appendix of our slides and in our first-quarter earnings release.

Let's begin the comments on slide 3. In our earnings release this morning we reported revenue of $1.693 billion; adjusted EBITDA from continuing operations of $50 million; and adjusted earnings per share from continuing operations, excluding a one-time tax valuation allowance, of $0.55 loss per diluted share.

As compared to results from the prior year, our first-quarter 2009 adjusted EBITDA from continuing operations decreased from $188 million to $50 million. The most significant reason for the decrease in adjusted EBITDA was the decrease in volume primarily attributable to the worldwide economic slowdown.

The favorable decrease in direct costs, which include material costs, more than offset the decrease in average selling prices. The net effect of foreign currency reflected positively in our results primarily due to the strengthening of the US dollar. With that I will turn the call over to Peter Huntsman, our CEO.

Kurt, thank you very much and thank you all very much for joining us. Let's turn to slide number 4 and talk about our Polyurethanes Division. Like the rest of our industry, the first-quarter earnings for our Polyurethanes Division were negatively impacted by the worldwide economic slowdown. First-quarter MDI volumes decreased 24% compared to the prior year, similar to what we believe our competitors experienced. In fact, first-quarter volumes were the lowest we've experienced since 1999 and were 11% lower than the fourth quarter which were down 13% compared to the prior year.

MDI demand fell sharply in November, bottomed out in December and has progressively improved on a monthly basis since. Similar to many of our other divisions, March was a stronger month than January or February. The industry appears to have stabilized and we're beginning to see some signs of recovery, particularly in China, as customers appear to have completed their destocking.

We are moving into a season of greater industrial activity as projects funded by recent government stimulus action begin to get underway. In Asia, for example, we have seen some initial signs of growth as local demand was notably stronger in March and April. This increase has been fueled somewhat by government stimulus initiatives including producer and consumer incentives for new appliances as well as subsidies for smaller fuel-efficient automobiles. This is significant as China is now the world's largest producer of automobiles.

We have taken aggressive steps to manage fixed costs within this business without sacrificing our long-term prospects. We have implemented a temporary hiring freeze, reduced discretionary capital spending and taken early action to reduce cost through active management of our production capacity and inventory levels. We have throttled back our operations in a disciplined manner including idling certain lines and operating others at reduced rates to balance our production and customer demands.

We remain convinced that our three strategically located global manufacturing sites in North America, Europe and China are among the most cost efficient MDI manufacturing sites in the world. This competitive position will continue to enhance our profitability as we go forward.

Our propylene oxide and coke product MTBE business margins increased during the quarter due to continued strong demand for exported MTBE and a decrease in cost of raw material. Propylene oxide volumes in the Polyurethanes markets were slower which required reducing overall PO MTBE production rates to match demand. We expect demand for propylene oxide to continue to be in line with polyurethane products while MTBE demand remains strong outside the US.

Turning to slide number 5. With regards to our Advanced Materials division, we believe the majority of customer destocking has ended with the remaining destocking to be completed during the second quarter. During the quarter we saw improvements in do-it-yourself applications which include our ARALDITE brand products which are well-known in Europe and Asia, and we believe that other applications will follow.

We have taken aggressive actions with our discretionary spending which resulted in a $9 million savings in fixed cost compared to the prior year. As a result of the decrease in demand we have rationalized our production capacity to maintain supply/demand equilibrium. Further, we have successfully secured a number of agreements with local governments to offset a portion of labor costs as we temporarily idle capacity.

Turning to slide 6. As you can see, due to falling demand our Textile Effects contribution margins contracted compared to the prior year in apparel and home textile products as well as specialty textile in all regions of the world. We believe we are at a significant turning point in this business.

Demand at the end of the quarter was greater than at the beginning and there are early signs that our customer destocking is near completion as we see an improvement in mill production. We continue to address the fixed cost of this business and by the end of 2009, between site closures and the planned headcount reductions of more than 400, this division will achieve $60 million in annualized savings.

When we are finished with our cost reduction plans we will have reduced our cumulative headcount by nearly 1,000 positions since the acquisition in July of 2006 or roughly 25%. We expect that the increase in demand coupled with the benefits from our restructuring efforts will enable this division to have positive earnings during the remaining quarters of this year. We are already seeing signs of improvement as this massive change takes place.

For instance, we started the quarter losing nearly $5 million of EBITDA in the month of January, but had a small positive number in March. During the second quarter we expect to complete our acquisition of a large Indiana textile chemical manufacturer known as Metrochem. We estimate the purchase price to be approximately $29 million. The financing will largely come from local banks and, as a result, it will have little impact on our overall liquidity.

This acquisition plays a key role in the restructuring plan of this business as we relocate our manufacturing closer to our customers in Asia and India and reduce our European fixed cost. We expect equivalent manufacturing capacity costs to be approximately 75% to 80% lower as a result of this acquisition.

Turning to slide number 7. Our Performance Product division performed well in the first quarter of 2009 primarily due to higher contribution margin as results in -- as reductions in raw material costs outpace the pressure on our selling prices. Our intermediate business realized higher year-over-year earnings in large part due to the manufacturing reliability of the Port Neches, Texas facility and contribution margins were higher in the first quarter of 2008 due to the recent drop of raw material prices.

During the first quarter of this year we saw demand for our products selling into personal care, household and institutional applications for detergents fall 15% compared to the first quarter of 2008. But earnings have been stable due to lower raw material cost and relative demand for -- relatively stable demand for detergents and personal care items.

Our performance specialty business, which represents about 50% of our divisional earnings, recorded positive year-over-year earnings. This is partially due to our agrochemical products which continue to see robust demand and strong pricing dynamics.

Looking forward within our Performance Products division, we expect further contraction of our selling prices as our sales contracts catch up with the decrease in raw material cost, thus returning margins to their more normalized level. We also expect to complete construction during the second quarter of this year of our new 100 million pound Maleic Anhydride facility at our Geismar, Louisiana location.

This facility will be among the lowest cost and most efficient Maleic Anhydride facilities worldwide. We are anticipating the construction of our Ethyleneamines manufacturing facility in Jubail, Saudi Arabia, a joint venture with the Al-Zamil Group, to be completed later this year and is expected to be operational in early 2010 with an annual capacity of 60 million pounds. The global market for Ethyleneamines remains tight despite the global recession.

Turning to slide number 8. Earnings in our first quarter of 2009 within our Pigments division were lower compared to the previous year primarily as a result of decreasing sales volumes. While Europe and North America remain slow, signs of improvement were seen in Asia toward the end of the quarter. An aggressive response plan was implemented to mitigate the impact of the demand slowdown.

Actions to restructure our costs include the closure of our Grimsby, UK TiO2 facility. Annual operating cost savings from the Grimsby, UK closure will be approximately $28 million. The plant continued to operate through late March, so most of these savings will start in the second quarter of this year. The production demand from Grimsby has been absorbed by our Greatham, UK facility which we believe is the lowest cost TiO2 chloride facility in Europe.

Additional cost controls were implemented to lower fixed costs and reduce inventory. We plan to reduce inventory in fixed costs further by idling Huelva, Spain -- our TiO2 facility in Huelva, Spain at the end of the second quarter while running other assets at full capacity.

Although raw material costs through the quarter were greater than the prior year, the trend within the quarter was very positive as March costs were well below the first quarter of 2008 assisted by the effects of the stronger US dollar. We have seen positive growth -- volume growth compared to the fourth quarter and expect this to continue.

With the reducing direct cost trend and the anticipated savings from our aggressive cost-cutting restructuring, we believe first-quarter earnings represent a significant turning point and expect that this business will generate positive earnings for the remainder of the year. Before sharing some concluding thoughts I'd like to turn a few minutes over to Kimo Esplin, our Chief Financial Officer.

Thanks, Peter. Let's turn to slide 9. Similar to the rest of our industry, our revenues decreased in all regions and across all segments of our company as volume and average selling prices decreased 19% compared to the previous year, primarily as a result of the economic slowdown. The global impact is visible as you consider sales decreased 37% in Europe, 36% in Asia Pacific, 31% in the rest of the world and for the United States and Canada it was down 28%.

Foreign sales decreased at a greater rate than that of the United States and Canada primarily due to the strength of the US dollar compared to other relevant foreign currencies. Continued destocking impacted our results as did the entire industry in the first quarter. However, as Peter mentioned, we have seen certain encouraging signs recently relative to monthly demand trends.

Slide 10. An April we entered into a credit agreement waiver with the lenders of our $650 million revolving credit facility. We have one financial maintenance covenant under our credit agreement which is a senior secured leverage ratio. The waiver, among other things, relaxes our senior secured leverage ratio covenant from 3.75 to 5.0 for the measurement periods between June 30, 2009 and June 30, 2010. Although we were compliant with all our covenants at the end of the first quarter, we felt it prudent to take action now to obtain greater flexibility as we consider the possibility of a protracted recession.

The maturity profile of our debt remains attractive, we have no significant near-term maturities until 2010 when our revolving credit facility expires in August and our senior secured notes mature in October. We expect to begin the dialogue with our banks to renew our revolver in the coming months.

We also have a 364-day off-balance-sheet receivable securitization that we expect to extend prior to its maturity. Even though this program does not mature until November of this year we have already begun discussions regarding its extension.

Slide 11. As of March 31, 2009 we have had $473 million -- we have $473 million of cash and $642 million of unused borrowing capacity summing to a total of $1.1 billion of liquidity on hand at the quarter end. We continue to pursue our multibillion-dollar fraud and tortious interference claims against Credit Suisse and Deutsche Bank. The court in Montgomery County Texas has ordered nonbinding mediation to begin next Wednesday on May 13, 2009 and trial to commence on June 8, 2009.

Separately, we remain in discussions with insurers of our outstanding insurance claims related to the fire at our previously owned Port Arthur, Texas facility. As of the quarter end our outstanding claims were $243 million. We expect to have this resolved through binding arbitration later this year.

Slide 12. We have put into place plans to aggressively manage our working capital investment including targeted inventory reductions. During the quarter we received a favorable cash benefit in our primary working capital of $58 million. Including the decrease in receivables associated with our off-balance-sheet accounts receivable securitization program, the favorable cash benefit was $159 million.

Inventories have decreased in value over 19% compared to the prior year. Through the remainder of 2009 we expect to free up additional liquidity through reductions in our working capital, particularly as higher valued costs are purged from the inventory valuations on our balance sheet. The active steps we took during the quarter to manage our working capital helped reduce our total net debt, including our off-balance-sheet accounts receivable securitization program, by $37 million. I will now turn the call back over to Peter for some concluding remarks.

Thank you, Kimo. In conclusion I'd like to just comment about our company and industry. The global economy remains in a very challenging state. However, we are optimistic that the worst of this market is behind us. During this past quarter most of the indicators within our business saw gradual improvement; the Chinese stimulus programs seem to be a having a positive effect; this gives me optimism that we will see similar signs in the US economy later in the year as our own stimulus spending starts to kick in.

Customers have mostly completed their destocking, raw material prices have leveled out and we're seeing order patterns improve as we move into the second quarter of this year. Thought we are encouraged by many of the signs we are seeing, we're not waiting for the economy to improve to strengthen our earnings. We are ahead of our planned $150 million cost reduction program and I believe we shall exceed our projections. We are aggressively cutting inventories and managing cash.

Despite a lower EBITDA than I would like to have seen, we improved primary working capital by $159 million in the first quarter. I remain optimistic that we will further strengthen our balance sheet after our trial in June with Deutsche Bank and Credit Suisse. In short, we intend to emerge from this economy and this economic storm better than when we entered in the fourth -- better than when we entered this recession in the fourth quarter of last year. Thank you very much and with that I'll turn the time back over to Kurt.

Thanks, Peter. Operator, that concludes our prepared remarks. Would you explain the procedure for Q&A and then open the line for questions?

(Operator Instructions). PJ Juvekar, Citigroup.

This is actually Eric Katz in for PJ. I was wondering if you could discuss the fundamentals in the Polyurethanes business globally including how much capacity is coming online this year -- especially in Asia.

I think with the capacity that's coming on in Asia, much of that -- the single largest facility to come on stream is the [Bayer] facility which is down from the road from us in Kaohsiung. So that has already come into the market and I know there have been some minor debottleneck projects and so forth coming in as well.

I think more significant than what's coming in is the discipline of the players and the producers in the Chinese and the Asian markets. I think that I have been quite surprised at the resiliency and the strength of surprises -- the strength in pricing and the overall capacity utilization. So I think the producers that are there have been quite disciplined with plant closures and so forth. But in front of me I don't have exactly which capacities are expected to come on at what time.

Can you comment on what operating rates are for your plants in that region?

Right now in China, because our facility has been shut down most of the fourth quarter and the early part of the first quarter, our inventories are at very, very low levels and our plants are running at -- today at better than 90% capacity utilization because of demand today. We are seeing very strong demand today in China.

Again as I said in my comments during the call, I think in lot of this is a restocking; I think a lot of it is fundamental demand on downstream products from insulation to automotive. In China in particular we're seeing demand in everything from products that are going into curing wind blades to the automotive sector to the construction sector to the textile sector. So it's not just really one area. I think we're seeing quite a solid across the board improvement in demand over what we saw the earlier part of the first quarter of this year.

Great, thank you.

Laurence Alexander, Jefferies.

Good morning. First, I was wondering, could do give a little bit more detail on the different end markets that Advanced Materials sells into? What the trends have been and particularly how you see those markets playing out in April/May?

I think as we look at Advanced Materials, most of our end markets there would be going into the coatings which is the -- reliant on the construction markets and so forth. In power, electrical, the infrastructure, you think about transformers in power grids all the way down to consumer electronics.

I think that when you think about the consumer electronics and you think about coatings in the construction area, those are areas that obviously have slowed down. When we look at the power and the infrastructure of the construction of the power grid system, particularly with the stimulus bills and so forth that are going on around the world, we're not seeing a fall-off as drastic there as you would in the construction area.

The aerospace industry for us continues to be a strong end-use application, that's not just going into commercial aviation, but also in defense spending as well. Again, as we think about the aerospace industry, you're down roughly -- first quarter volume down about 30%. I think that a lot of that is due to the shutdowns that you saw in Boeing and Airbus during the first quarter as they tried to get the orders in line with the cancellations and so forth that they're seeing. Longer term I think that aerospace is going to continue to be a fine growing product for us.

The adhesives, the do-it-yourself, we continue to see demand growth in this area and we continue to be very optimistic, particularly in Europe and in Asia, India, China in particular. And wind turbines continues to be an area that would be -- again, we've seen a fall-off in demand, but nowhere as drastic as we have in the construction area.

And then on Polyurethanes -- when you think about order trends in April and whatever visibility you might have on May, is the sequential increase that you are seeing more than your usual seasonal increase or is it roughly in line with historical seasonality?

I think it's roughly in line with seasonality. We had a -- as I look at the orders from April and March and the comparison, it's up marginally from April to March. I do not think that we're going to be seeing a large bounce back on the global front, I think that we're going to be seeing a gradual recovery that will be taking place throughout 2009, hopefully picking up steam in 2010. Again, we do expect in May that we'll see a gradual improvement over April and that should really continue across the line.

And lastly, given the sharp improvement that you expect for a couple of the segments, do you think you can get back to EPS profitability in Q2?

I'm not sure that -- well, I'm not sure. We're not going to be giving that sort of guidance. The volatility that we're seeing in the markets, that's not something that we've done in the past.

Fair enough, thanks.

Frank Mitsch, BB&T Capital Markets.

Can you take -- can you give us an idea as to the impact of foreign exchange and raw materials were for the first quarter and what your expectation is in terms of second quarter for those two issues?

Frank, I think we may help you if you look at slide 3, the bridge from first quarter '08 to first quarter '09 you can see that FX revaluation and transaction $17 million benefit in the bridge.

Yes. How about on a sequential basis?

I have it, let me just grab it just a second.

And would your expectation be that your -- with respect to raw materials you expect a continued benefit?

Yes, as we're an average cost inventory company, and so that really -- the benefits of lower raw materials that we started to experience late last year really are slowly flowing through our balance sheet and into the P&L. So as we look at each of our businesses, the cost per unit flowing through the P&L continues to go down. Sequentially we were flat currency wise.

Okay, all right. And then, Peter, you talked a little bit about operating rates in Polyurethanes in China. Can you talk a bit broadly about operating rates for the overall firm or maybe highlight some of the individual units like Pigments and your expectations for second quarter?

I think, Frank, that it's -- I don't want to get into the granularity on a product-by-product basis, but I think that it's safe to say that across the board I think industry wide, as we look at the entire industry, it's safe to say that demand in most areas we're down probably 25% to 35% depending on end use applications. And during that time period obviously Huntsman was trying to get rid of as much of the higher cost of inventory in our system as we could.

So our operating rates were probably 10% to 15% lower than that -- or our operating rates probably -- I look at polyurethane, operating rates today are around 60% globally. And so when you think we're running very aggressively in Asia, we're probably operating around 50% in the rest of the world, that's not to say that that's where the demand is. It is to say that where demand is today in our efforts to lower inventory further and to free up cash that we are going to see a lower capacity rate.

Which brings us to a broader question of judging that performance over all the Company. If you were to look at the EBITDA versus the managing for cash, we obviously could have had a higher EBITDA and generated less cash. I think at these times we want to make sure that we're managing our cash as prudently as we can, that we're getting rid of as much of the higher price inventory and so forth as we can.

So as we reduce our operating rates, as we did in the first quarter and as we will in some of our businesses in the beginning of the second quarter, and I'm hopeful by the end of the second quarter that our operating rates will really be matching the overall demand that we see in the industry, we'll be taking an EBITDA hit, if you will, because we'll have those fixed costs spread out over fewer pounds of production.

All right.

Case in point, I guess we have two, two of our divisions, Frank, are utilization rate sensitive, that would be MDI, we talked about that, and in Pigments TiO2. In the quarter we probably operated our plants at just a little over 50% utilization rates. If we were operating based on market demand that would be probably closer to 70%.

And I agree, Peter, we have been hearing about MDI coming back in terms of pricing and so forth, unfortunately you can't really say all that much about the -- on the Pigments side. But just, can you help me understand the volume numbers on Performance Products. Volumes are down 3%, now it says it's adjusted to include tolling. I believe you said detergents are largest business, you were down 15% on a volume basis for your largest business. So it obviously improved in other parts; can you just spend a moment (technical difficulty) to point out where that occurred?

One of the strongest businesses we had in the quarter was Ethyleneamines, and Ethyleneamines goes into things like curing agents --.

That would be epoxy curing agents and so forth, wind turbines would be an example of that. And quarter to quarter that looks like it was up about all most 20%.

So obviously this new plant in Saudi Arabia is needed and will be good for us. When you look at the other businesses, we had pretty good European sales in our surfactants businesses, linear alkyl benzene was strong, and we had pretty good glycol [toluene] demand in our businesses. Some of our partners ran ethylene through our glycol unit to [toluethylene].

Okay, so it was a combination of the specialty amines, the surfactants and then some of the glycol toluene were positives?

Yes.

Thank you, guys.

[Roger Spitz], Bank of America.

Thanks, good morning, guys. In Advanced Materials, can you say how much your business is in liquid epoxy resins, because I was told it's been small now. And if my assumption is correct that liquid epoxy resins have been doing worse than the downstream epoxies and can you discuss how the downstream epoxies have been doing, have they been following liquid epoxy resins down in volumes, etc.?

Yes, as we look at our overall volumes in liquid epoxy resins, they're down about 25% year on year for first quarter. The earnings in that particular division, it swung from a positive million plus to a negative million plus. So to answer your first question, has it been negatively impacted, yes, it has.

The downstream business is certainly where you're able to sell with fewer competitors in a more specialty oriented grade where more of your price is made up through technology and application rather than two or three major raw materials, that would certainly be the case. The BLR, the liquid epoxy resin, used to be 40 plus percent of this business and today I would -- I don't have exact numbers, I would say that it's probably just under 20% of the business.

To give you a sense for pricing, and that may be part of your question, Roger, basic liquid epoxy resin pricing year-over-year probably was down between 25% and 30%. When you look at formulated systems and specialty components, they fell maybe 5%.

Great. And the other thing is in Q1 '09, if you want to get into this granularity, can you break down the Polyurethanes EBITDA between MDI and POMTBE?

Yes. For the first quarter of the year EBITDA was generated largely through propylene oxide MTBE and the Polyurethanes business was close to breakeven.

And I'm assuming that's changed materially year over year?

Absolutely. I think last year, of the roughly $130 million of EBITDA generated in Polyurethanes, it was almost all Polyurethanes, propylene oxides generally in the first quarter generates $10 million to $20 million of EBITDA and that was the case last year.

Thank you very much.

Jeff Zekauskas, JPMorgan.

Good morning. A few questions. Your D&A for the quarter was $126 million, I guess up from about $108 million in the fourth quarter and $94 million in the year ago. Was there something unusual in that number? Or is that a good number to use going forward on a quarterly basis?

You should think about it as a little under $100 million per quarter, it was up higher as we accelerated depreciation on our Grimsby facility shutdown.

Okay. Second, there's been a lot of volatility and sulfur prices and can you talk about how changes in sulfur prices are or are not reflected in titanium dioxide prices? And can you talk about your titanium dioxide prices going forward?

I would say that the sulfur is a component of our overall cost of TiO2. We don't buy sulfur directly but you're buying sulfuric acid and sulfur derivatives. You're probably looking at less than 5% of our cost of TiO2 is a sulfur or sulfur derivative product. Certainly it helps, but I'd like to see ore prices fall as much as sulfur prices. I don't think we'll see that anytime soon, but it's been a remarkable drop in sulfur. And the second part of your question was around TiO2 pricing?

Yes.

We have initiatives underway, particularly in Asia some of our competitors have also announced pricing initiatives. We obviously are quite optimistic, there have been a number of facilities that have shut down on a global basis. More capacity has come out in the last quarter I think than probably any two to three years combined in TiO2.

I think that TiO2 may well be one of the more radically changed divisions that we have a year from now. I say more of the industry rather than just our division as you look at bankruptcy of a very large competitor and so forth.

But I think when we look at pricing, pricing has been quite flat on a euro basis which is the way that we look at most of our sales, about 60% of our sales are in the European, 65% in the European market. The first quarter has been quite flat and, again, we're shooting for those increases in the second quarter, it's just too early to tell.

What we found, and it's unique relative to the last number of years, is that in dollar terms European pricing is lower than all the other regions -- Asia, North America and the rest of the world. As you'll recall, a year ago we were faced with the opposite problem where European prices in dollar terms were $300 or $400 ahead of North America which encouraged a lot of importing into our backyard the European market. We see the opposite true today.

A lot of different dynamics around Pigments. That will continue to be a changing industry.

That's really helpful. Just a few other short questions. Your annualized cost savings is $150 million that you're forecasting. How much did you capture this quarter? And how much might you capture next quarter?

Well, let's start, for the most part we are just starting to see our headcount reductions. So it's really beginning in the second quarter. The big chunk you'll see beginning in the second quarter will be this $28 million benefit from Grimsby closure, so you will see that $5 million or $6 million pretty quick from that. And then Textile Effects, you'll start to see those really beginning in the second quarter and throughout the year. And by the fourth quarter you'll see that annualized 150.

And then lastly, can you tell me what your receivables and inventories were in the quarter?

Yes, let me grab that, it may be just a second.

Thank you.

Jeff, I think we'll go onto the next. You've got it?

We'll be filing our Q here towards the end of the day and you'll be able to get this. But our accounts receivable at the end of the quarter was $820 million compared to December 31, 2008 of $905 million. And inventories were $1.333 billion compared to $1.5 billion at year end.

Thank you very much.

That excludes our account receivables. When you look at accounts receivable securitization, it was $446 million at the end of the year and at the end of the quarter it was $328 million.

Okay, great.

[Laurence Jollon], Barclays Capital.

Given your earlier comments around an expected decline in pricing and performance products and consequently a fall in margins on a sequential basis, can you help us get some comfort around maybe second- and third-quarter EBITDA? Is it -- maybe give us some comfort as to why it might improve on a sequential basis. Is it really improvements in Pigments given the Grimsby benefit flowing through as well as cost savings or what else can you help us -- what else can you point to I should say that can help us think through an improvement in EBITDA on a sequential basis?

I think most of the improvement that you're going to see in TiO2, again without getting into specifics on a quarter-by-quarter basis, I would imagine that probably two thirds of the improvement that you'll see will be coming about through things that we have done ourselves within the Company managing the Company.

We're hopeful that we'll see an improvement in volume; that is what virtually every company in this industry is relying on between now and the end of the year. I think that that's obviously a factor, but I think the biggest improvement that we'll see in the bottom line of our Pigments business will come about through self-help steps.

Your earlier question, I believe, was around performance products. And Performance Products, we've seen some really great quarters in fourth quarter and first quarter which we really benefited from lower raw materials and we're able to hold on to those a little bit longer. And we see those margins coming down a little bit to more normalized levels and similar to what we've seen in prior years.

Do you have any fear, given your current outlook, that you may potentially -- you're -- not seeing your secured leverage ratio may potentially be slightly higher than the amended five times covenant at the end of the third quarter such that you wouldn't have access to that revolver the subsequent quarter per the recent amendments?

We think we've set the covenants at levels that will provide us cushion in those out quarters. As we've said, we're going to go out and start a discussion with our banks around extending that revolver here in the middle of the year anyway.

Okay, thanks a lot.

Thank you. Operator, why don't we take two more questions.

Michael [Boam], BlueBay Asset.

You had a fairly impressive reduction in operating expense year over year. I just wondered how much of that is likely to be retained going forward. It came down from about $290 million last year to $225 million this year.

Michael, you're referring to the corporate costs?

Yes.

Yes, that is corporate and other. We had some foreign-exchange unallocated losses that flowed through there in 2008 that we're not realizing today. And we are bringing down our corporate costs. We would expect with this $150 million of cost reduction, a big chunk of that will be, in fact, in that corporate unallocated as we continue to reduce it. So the short answer is, yes, we would expect to maintain that and hopefully improve upon it.

Okay. And then finally -- sorry, one more question. Could you just tell me the cash balance at Huntsman International at the end of the quarter and whether or not any more payments have been made into Huntsman International from Huntsman Corporation during the quarter?

Sure. The cash position of Huntsman International at March 31, 2009 was $470 million.

And have anymore intercompany payments made it during the quarter?

Well, the cash got to Huntsman International through intercompany loan.

Okay, thank you very much.

[Gregg Goodnight], [Kinman Addison] Consulting.

Good morning, gentlemen. Benzene costs and chlorine prices may be moving up. How are you planning on offsetting these increased costs for MDI?

First, I know that there's a big push to put benzene prices up. Personally I don't think that they're going to hold. We obviously have some contracts where we are able to put through price increases automatically, that's with about a quarter of our business, a third of our business here in the US. But I'd be very surprised if you see benzene prices and chlorine prices increase and stay up for more than a few weeks.

Our buying patterns right now with benzene -- we don't intend to be buying any benzene here for probably the -- without giving away buying strategies, we don't intend to be buying benzene at these higher prices unless they are sustainable. I highly doubt that they will be sustainable. Chlorine prices, I just -- given the lack of demand in the PBC markets and so forth, I don't think those prices will be sustainable either.

But again, we will be working to -- we have to take in higher prices. To some degree it does give us ample justification to raise prices on MDI and eventually we will start seeing some of these raw material prices kind of bounce off the bottom. I don't think -- I think there are going to be a couple of false bounces here as we've already seen. In benzene a few weeks ago we saw prices go up regionally, globally for a few weeks and then they came back down.

I think those were mostly just regional North American changes that we were seeing in the market. I don't think fundamentally that the demand is such in our industry to sustain those price increases. And frankly, when some of those price increases do stick I think that you probably will start seeing customers coming back in the market and restocking their inventories to some degree. So we'll manage these price by price, product by product and really customer by customer.

Justly you understand again, in our polyurethane P&L it's an average costing system. So even in say March, you never really saw the benefit in the P&L of $1.25 a gallon benzene. You're seeing probably closer to above $2 a gallon benzene even though prices fell that far because average costing systems slowly give you that benefit. So I think today benzene prices are below $2, but we bottomed out closer to $1.25.

That was very helpful. In addition, MDI additions in Asia -- I think a previous caller had mentioned, one, the buyer addition. But there are a couple more that have been reported as recent like Nippon Polyurethanes at 200,000 tons, Kuhmo Mitsui at 70,000 tons that were both supposed to start up in Q1. Can you comment, did those startups actually happen and what effect are they having in the market in Asia?

Well, right now, as I said earlier, in Asia we're really running at near capacity in Asia. And a lot of that -- again, that's due to both demand and it's also due to some of our competitors that are either struggling with operations or struggling with or just have had their plant down to reduce their own inventories.

We took a very early approach to inventory reduction, a very drastic approach to inventory reduction. But as far as the two facilities that you mentioned, those are both competent operators. I don't think they produce product as well as we do, but I think they're both competent operators and I think those capacity expansions will probably be coming on line in the latter part of the first quarter, early part of the second quarter. But I don't see -- I've not yet seen a quarter's worth of full impact from those competitors.

And I'll say that those facilities may come on, that's not to say though that they're running their other facilities full out. As far as we understood Nippon Polyurethane, and [Yanti] and all of the Asian producers had idled significant capacity through the first quarter as everyone was throttling back.

And all of those that you've mentioned too, with the exception of Yanti, also have some older and higher cost capacities that I imagine will be taken out permanently as part of this. What the net effect of all this will be is really yet to be seen.

Thanks for that color. Could I sneak in one more question?

Sure.

MDI demand growth, are you expecting any global MDI demand growth this year with negative global GDP expectations? And the follow-up to that question is what is your expectation for global operating rates for MDI this year?

Global operating rates for MDI I think technically are today, technically right around 70%. I think the effective rate today is right in the mid-80s, the difference between those two, if I subtract the publicly announced capacities that have been shuttered, the higher cost capacities have been permanently shuttered are those that have been announced they will be shut down for a quarter or two.

When I subtract that capacity out of the industry today it appears to be in the mid-80s. But if you just look at it numerically, how much capacity is out there and what the demand is it would appear to be right around 70%. What I'm seeing in pricing and what I'm seeing in product movement would lead me to believe that the industry is operating somewhere in the mid 80s.

As far as the global demand for MDI, really it's just too early. I think that a lot of the stimulus spending that we're seeing in China, a lot of it that we'll see in the US will be around energy conservation, around green construction and so forth. Spray-on foam, a lot of these applications that MDI is unique in filling, I think that we will be a market leader in that.

We will be very aggressive in our efforts to make sure that we get our piece of the action, if you will, in the stimulus spending going forward. I think that a lot of the Chinese activity, when you talk about taking existing buildings and bringing those buildings up to environmental standards we are uniquely positioned to be able to benefit from that.

Our investment very early on in China, particularly in the automotive industry where we are applying our product not only in the seats, but also the steering columns and the insulation and so forth within the automobile itself. I think it's just too early to tell. I think we were surprised at the falloff that we saw in the first quarter.

I think when you -- nobody really knows the effect that destocking has had and how much temporary shutdown and permanent shutdown there's been around construction and so forth. Obviously we're more optimistic as we look into the third and fourth quarter of this year that quite a bit of that growth and destocking will be coming back.

I appreciate the answer, good luck going forward.

Thank you very much. Operator I think that concludes our availability today and we strongly would encourage anybody else that does have questions to please call Kurt Ogden and Kimo Esplin and we certainly would like to speak with as many people as we can.

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. And have a wonderful day.