Huntsman Corp (HUN) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2015 Huntsman's Corporation earnings conference call. My name is LaToya and I will be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session.

( Operator Instructions )

As a reminder, this conference is being recorded for replay purposes. I would now like to the conference over to the Vice President of Investor Relations and Finance, Kurt Ogden, please proceed, sir.

Thank you, Latoya. And welcome to Huntsman's fourth-quarter 2015 earnings call. Joining us on the call today are Peter Huntsman, President and CEO, and Kimo Esplin, Executive Vice President and CFO.

This morning before the market opened, we released our earnings, for the fourth quarter and full-year 2015, 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.

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 risk 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 for forward-looking statements during the quarter.

In addition, we will also refer to non-GAAP financial measures such as EBITDA, adjusted EBITDA and adjusted net income or loss. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted on our website at Huntsman.com. In our earnings release this morning, we reported fourth-quarter 2015 revenue of $2.332 billion, adjusted EBITDA of $240 million and adjusted earnings per share of $0.51 per diluted share.

I will now turn the call over to Peter Huntsman, our President and CEO.

Good morning everybody. Thank you, Kurt. Let's turn to slide 3

Adjusted EBITDA for our polyurethanes division in the fourth quarter 2015 was $141 million. The majority of our Company's foreign-currency exposure is within this business. Compared to the prior year, we experienced $12 million of negative EBITDA from foreign currency exchange as a result of the stronger US dollar, primarily against the euro.

Our MDI urethanes margins expanded compared to the prior year and in the prior quarter, primarily due to lower raw-material costs. Our differentiated-MDI products delivered approximately 20% EBITDA margins.

Competitive business conditions for component MDI are challenging. We continue to drive for greater differentiation, independent of MDI-utilization rates. Approximately 70% of our 2016 capital expenditures are targeted on our downstream differentiated MDI business.

During the quarter, demand for MDI increased modestly by 2% compared to the prior year. Demand was stable in Europe and the Americas, whereas volumes improved in Asia, in part, due to competitor maintenance outages.

During the year, demand improved 6% in Europe, which is our largest market, as demand for automotive, commercial installation and composite wood product applications demonstrated attractive growth. Our fourth quarter PO MTBE EBITDA declined $30 million compared to the prior year. MTBE is valued as an octane enhancer in fuel oxygenate. MTBE margins decreased in line with lower prices for high-octane gasoline.

In 2016, we expect our MDI urethane's EBITDA to increase modestly. Lower-priced oil environment will reduce MTBE margins. However, we won't repeat the significant maintenance outage we had in the first half of 2015 which decreased EBITDA by approximately $95 million. All in, EBITDA for our polyurethanes business will improve in 2016.

Let's turn to slide number 4. For the fourth quarter, our performance products division recorded adjusted EBITDA of $76 million. Compared to the prior-year, we experienced $8 million of negative EBITDA from foreign currency exchange as a result of the stronger US dollar primarily against the euro.

Generally speaking, approximately two-thirds of the earnings from this division are generated from amines and maleic anhydride where we have leading market positions. Compared to the prior year, EBITDA for this portion of the business increased primarily due to the strong margins for amines notwithstanding increased competition for volumes in amines and maleic.

The other one-third of this business is comprised of surfactants and ethylene intermediates. We produce internally approximately half of our ethylene needs and transfer it at market economics to our downstream businesses.

Ethylene and other olithin margins decreased significantly in the quarter. As a result, the EBITDA contribution from our surfactants and ethylene intermediates contributed less than 20 % of the EBITDA of the division this quarter.

In the first half of 2016 we will benefit from our ethylene oxide expansion and towards the end of the year, we'll benefit from our poly ether amines expansion. We expect lower margins in surfactants and ethylene intermediates to offset earnings growth in our amines, maleic anhydride businesses and ethylene oxide expansion, such that 2016 EBITDA will be similar to 2015.

Let's turn to slide number 5. In the fourth quarter, adjusted EBITDA in our advanced materials division improved by $5 million from the prior year to $48 million with an EBITDA margin of 19%. While our cost reductions, aerospace capacity increases and customer rationalization now complete, we are seeing this division's stability and strength. EBITDA margins have consistently been around 20% during 2015, in part, reflecting the quality of this business.

More than one-third of the earnings from this business are generated from the aerospace market where we supply epoxy resins and hardeners used in composites. Our products are qualified and, in many cases, are required on long multiyear production runs of new generation aircraft. We expect EBITDA in 2016 to improve modestly in this business.

Turning to slide number 6 Our textile effects division reported adjusted EBITDA of $13 million in the fourth quarter, an increase of $7 million compared to the prior year. We've targeted key markets such as China, India and Bangladesh to grow our business. These efforts have been successful as sales volumes in key markets grew approximately 5% in the fourth quarter compared to the prior year.

Overall, our sales volumes decreased as we deselected certain lower-value businesses and experienced challenging marketing conditions in South America and Europe. Contribution margins increased as raw material costs decreased and our focus on higher-value product ranges. In 2016, we expect fabric and garment differentiation requirements to increase as we expect continued demand growth in our key markets. We expect EBITDA in 2016 to improve moderately.

On slide number 7. Our pigments and additives division had breakeven adjusted EBITDA in the fourth quarter. Business conditions remain challenging for the Ti02 market. Compared to the prior year, our sales volumes decreased primarily due to lower demand. Averaged the TiO2 selling prices decreased further from the third quarter. The decline was most pronounced in North America where prices are higher than other regions.

We are encouraged by the recent Ti02 price increase announcement and are optimistic the industry will implement Ti02 price increases through 2016. We are determined to deliver incremental synergy in restructuring savings in more than $100 million from this business in 2016. Pressure on Ti02 selling prices will linger through the first quarter of 2016 before we start to see benefit from the announced price increase. We expect EBITDA to be slightly positive in 2016. 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 go to slide 8. Our adjusted EBITDA decreased to $240 million in the fourth quarter of 2015 from $292 million in the prior period. Lower Global economic growth and customer destocking led to lower sales volumes which impacted our EBITDA by approximately $42 million.

The foreign currency negative EBITDA impact of approximately $24 million was primarily from the stronger US dollar against the euro. Average selling prices decreased at a more modest pace than raw material costs which led to an overall improvement in margins of $25 million.

Compared to the prior quarter, our adjusted EBITDA decreased to $240 million from $312 million in third quarter. Lower sales volume from seasonality was amplified by customer destocking as many customers took advantage of deflationary-pricing environment to reduce inventory within their respective supply chains.

Slide 9. At the end of the quarter, we had liquidity of just over $1 billion. In September of 2015, our board authorized the repurchase of up to $150 million of our common stock. In October, we entered into a funded and accelerated share repurchase agreement to purchase $100 million of our common stock. The accelerated share repurchase program was completed in January of this year with 8.6 million shares repurchased.

For modeling purposes, we expect our annual depreciation and amortization rate to be approximately $400 million in 2016. The combination of effective tax planning and certain unusual tax benefits and the regional mix of income in the fourth quarter led to an unusually low tax rate for 2015. We expect our 2016 and long-term adjusted effective tax rate to be approximately 30%.

During the fourth quarter 2015, the strong US dollar reduced adjusted EBITDA by an estimated $24 million compared to the prior year. The full-year impact was approximately $136 million. Our most significant foreign currency exposure is to the euro where our euro revenues are approximately EUR600 million higher than our euro costs annually.

Improving our free cash flow generation is a very high priority for the company. With the Rockwood integration and restructuring in 2015, made for a transition year and we are excited to deliver improved free cash flow performance in 2016. In 2016, we expect our free cash flow to improve by at least $350 million. This will come from reduced capital expenditures, lower cash payments for restructuring and lower maintenance costs.

As we track toward improving our free cash flow next year, I want to make sure you are tuned into our working capital trends. We consider primary working capital as accounts receivable, inventories and accounts payable. We report our quarterly primary working capital movements in our earnings release each quarter. Our strongest earnings quarters are generally the second and third. As a result, we generally build primary working capital in the first half of the year and reduce it in the second half. Peter.

Thank you Kimo. As we conclude 2015, it is worthwhile to review a couple of the milestones that took place, as these will certainly impact our business in 2016. From a macroeconomic perspective, we're expecting deflationary pressure on commodity prices such as oil and first-line derivatives. This will be compounded with slower than traditional growth in Asia and China, in particular.

While we expect North America and Europe to see marginal growth, it will be in the very low-single percentages. We expect to see better than GDP growth in our amines, MDI, epoxy, textile chemicals, maleic and other downstream formulation businesses. We also expect to see a margin expansion in these divisions as a whole. With lower-priced raw materials, sales prices will drop in many of our products, but margins should stay consistent.

With the fall of crude prices this past year, we have seen the North American gas advantage that we have enjoyed these past couple of years substantially diminish. This will put downward pressure on margins in MTBE, olithins and other basic commodity chemicals. As I outlined in my earlier comments, we've announced a series of badly-needed price increases in our TiO2 pigments division.

Due to the lag time of pricing notification and the nature of pricing in the pigments industry, we expect to see further softening of prices in the first quarter of this year. We are in the process of meeting with customers and I am very encouraged by the feedback I'm getting. It is too early to state how much of an increase will occur, as I look at order patterns and listen to customer feedback. However, I am more encouraged today than I was a few weeks ago.

We expect to see some positive movement in the second quarter of this year. I expect pigment prices to end the year stronger than we started the year. But, given how deep the hole we are starting the year, I expect our pigments and additives to be slightly EBITDA positive. Again, we should see a much better ending to the year than the start.

Taking all these variables into account, we are expecting 2016 to be a stronger year in our downstream businesses, and margin pressure on our upstream businesses and pigments down slightly. All in all, we're expecting that the expansion of our downstream margins in capacities will offset our upstream margin erosion and we should see a similar EBITDA in 2016 compared to 2015.

In a low-growth economic environment, cash generation will be the single biggest objective we can do to create shareholder value. In 2015, after finishing our pigments' restructuring, and integration, completing a number of global projects, and a once-every-five-year maintenance project, we spent over $850 million. In 2016, we will see our CapEx spending drop by $200 million and we'll spend $100 million less in restructuring and another $50 million less in operations, as we haven't any large maintenance projects.

Tying this to our projected EBITDA, we expect to generate a record $350 million in free cash flow improvements this year. Should raw materials continue to see a continuation of recent trends, we should also see added opportunities and improvements with our working capital. We have a great deal of confidence in these projections as we control our CapEx and restructuring expenses.

With respect to our pigments division, we remain committed to spinning our Ti02 business as soon as market conditions permit. We're aggressively pursuing a number of strategic options with this business and, should we find an opportunity to create shareholder value by closing on one of these options, we'll certainly do so as soon as possible.

If we look at our business without our existing Ti02 division, we would be looking at 2016 as a record year for cash generation and EBITDA margins, a materially different and stronger company than we what we have today. Obviously, the conclusion of this separation is a very high priority for this company.

While 2016 will show signs of a macroeconomic malaise, we have an opportunity to really change the profile and cash generation of this company. This will be a year of real change and transformation and I'm very confident about as much of this change is wholly within our control.

On March 2, next month, our senior management will presenting our company more details behind this transformation. We look forward to seeing many of you at this event, the details of which are posted on our website at huntsman.com. With that, we'll turn the time back over to Kurt.

Thank you Peter. Latoya, will you explain the procedure for Q&A, and then open the lines for questions, please.

(Operator Instructions )

Your next question comes from James Sheehan with SunTrust Robinson Humphrey.

Good morning, thanks for taking my question. Just curious about the effect of low oil prices on the overall portfolio. It looks like you were thinking that it's not going to be a net headwind now, given the effects on cyclical businesses. Can you talk about how you have seen the effects of oil progress over the last year? And is there a difference in your mix from earlier that is causing you to think that this is not a net tailwind any longer?

I think as we look at oil prices, I think that we would be a little too narrow in our view of the Company to just look at oil prices in and of themselves. If oil prices are going down because of sluggish economic demand, you're going to see a push downward in margins regardless of what happens to oil prices.

If oil prices are falling because of the glut of oil on the market, that's quite another scenario. I think that when we look back a year ago, at this time, we saw better economic conditions a year ago at this time, and oil was falling because there was a glut of it on the market. I think if we look at the overall market today, oil prices are down, but it feels like the economy is a little softer than it was a year ago.

I think that, as we look at the overall market, certainly with what we see with the drop of oil this last year, a year ago at this time being in the mid-$70s, and during the fourth quarter in the low $40s and today being around $30 a barrel, we're certainly not going to see the fall of oil prices this year in 2016 as we saw in 2015, because that means oil would be at, like, $2 a barrel. But I think that that will certainly put pressure on margins of those products that benefit most from the US differentiation of gas prices and global crude prices; that would be MTBE, ethylene and first-line ethylene derivatives, if you will.

It also should allow us, probably on a quarterly, not on a yearly basis, but on a short-term basis, to be able to capture some of the margin on falling raw-material prices. As we saw in the fourth quarter, we saw some pretty strong MDI margins compared to what we were expecting, because of falling raw material prices. We were able to keep some of that added margin. I think again, it is going to be a combination of low raw materials; it's going to be coupled with economic growth and how that will determine the economic vitality, will determine how well we're able to keep that expanded margin.

Thank you. And on MDI, can you please give us your view on operating rates by region and what your outlook is for the full-year 2016 on those? Thank you.

As we look globally, we are probably somewhere in the mid- to upper-80s in operating rates. Again, that's going to break that into two areas. One's going to be your regional operating rates. Europe, I think, is probably around 90%. The US is probably in the low- to mid-90s and China would, I would suspect, in the mid- to upper-70s percentile.

But, as I mentioned in the call, on the commodity side of the MDI molecule, you're going to see more challenging market conditions. On the MDI formulation derivatives, further downstream, we continue to see a very high teens, pushing a 20% EBITDA to sales margins. Obviously, the further downstream you go, the more specialty you go, and the less impact capacity utilization is going to have on that.

Thank you.

The next question comes from Bob Koort with Goldman Sachs.

Thanks for the do-over.

Peter, I was wondering if you have ever tried to quantify what you think the impairment on the enterprise value is by having the TiO2 business as a part of the portfolio. I recognize the positive commentary you made about the gross businesses, but have you ever looked at what you think the dent is to shareholders from having the two businesses attached?

Yes, we have, and I think that as we do that, that's why we're pushing as aggressively as we can on the separation. I think that, as we've talked to a number of shareholders, I think that the views on that, obviously, are scattered all over the place.

But, by and large, I think that people feel that the Ti02 market is as bad as it's going to get. Let's do something that will allow us to participate, perhaps, to some degree, in some of the future expansion of value, which would argue for a spin or something of that nature, a joint venture or something. Let's not panic. Absolutely, this enterprise value is going to be better off with a separation of the two businesses.

Bob, I think we guided to a similar EBITDA in 2016. I think that suggests that we are trading at roughly, 5 times. That is really zero value for a TiO2 pigments business, that we think, on a more normalized basis, will have to $2 billion to $2.5 billion worth of value.

We are trading at 5 times with $2 billion to $2.5 billion of upside in Ti02, and I think our peers are a couple of turns of EBITDA ahead of us that have a texture business that look an awful lot like our advanced materials, polyurethanes and performance products businesses. So, if that helps you, it is probably 2 turns of EBITDA, plus some upside in Ti02 that we're not getting value for.

That is helpful.

When you bought Rockwood, I recall, at the time, there was some comfort in the stability of the non-TiO2 pigments and the combination of that in restructuring savings could offset some weakness in Ti02 Can you tell us what's gone on after those restructuring savings, and also how the non-Ti02 pigment earnings have trended?

Sure.

If you will recall, we had suggested a normalized EBITDA in the Rockwood businesses of $200 million. For 2015, the Rockwood businesses will do $115 million. Obviously, that suggests our own Ti02 business is significantly negative. That was the business that we also thought, on a normalized basis, would be about $200 million. The Rockwood businesses have been disappointing.

The additives businesses have been very stable, as shown in the $115 million, and they have a more specialty TiO2 profile So relative to the $1 billion, the $1.1 billion that we spent, yes. We are not at that $200 million.

We have another $100 million of synergies to go. We told the market at the time we'd have $130 million total and we've suggested that we are going to be at about $175 million. It's not a complete bust. At the bottom of the cycle, again, the Rockwood business will do $115 million this year.

Your next question comes from Aleksey Yefremov, Nomura Securities International.

Good morning. Thank you.

On the question of MDI margins, were you ahead of the normal run rate in the fourth quarter because prices fell slower than raw materials? And do you expect margins separately in components and systems to decline in the first half of 2016, or be maintained at this level?

Pricing is always something that's very tough to speculate. But as we look at our pricing overall, we would certainly hope to be able to maintain our downstream formulation and more specialty side of that component. A lot of the variable that we see in MDI on the component side, the more commoditized side, is pressure in China, where the preponderance of capacity in China is more component and more commodity-oriented. We have got a very large competitor there that has had some of their larger facilities down in the fourth and first quarter on some maintenance and we have also got Chinese New Year taking place right now.

I think we're probably going to be in a much better position here in a couple of weeks perhaps at our investor day to give some further light as to where we see the year starting out with MDI demand. I think that as we look at the overall mix between differentiated and our component businesses, the movement that we started a couple of years ago, to move as much as of our MDI into differentiated margins and differentiated consuming applications certainly is the right one and the margins and the strength of that business has borne that out.

Thank you, Peter.

As a follow-up, on free cash flow, you have a bridge on slide 9 which shows working capital benefit of $143 million in 2015. How would you expect working capital contribution to be in 2016?

We would expect that we would continue to pull cash out of working capital, that it will be a positive. Some of that really has to do with where your energy prices are going to end up in the year. We think it will contribute to free cash flow in 2016.

If I may follow up on that, if you're not able to repeat this $143 million of benefit in 2016, are there any other line items on the free cash flow statement that could benefit year over year, aside from the ones that you already highlighted on the slide?

Well, of course EBITDA. We've guided to a flat EBITDA. We think that, again, this $350 million improvement is significant relative to our equity capitalization. Taxes are always a little uncertain, but we think that taxes; we've guided historically at our long term cash rate at between 20% and 25%. Again, even if primary working capital were flat, there's another $350 of free cash flow.

Thank you.

The next question comes from Frank Mitch with Wells Fargo securities.

Good morning, gentlemen. Kimo, I think you're being a little bit modest when you say taxes are a little uncertain. You always seem to find a way to work that lever to your credit.

We make sure our tax folks are compensated by-- we look at it as a profit center, Frank.

It works out great, terrific. Peter, I really appreciate a lot of the color on the guidance. Three of the segments should be up, in EBITDA, performance, plastics, flight and, obviously, TiO2 is going to be off from the $61 million this year, but still positive.

Kimo just said that Rockwood should contribute $115 million. I believe you said you're going to get about $100 of savings from your initiatives, particularly in Europe. So that implies that the base Ti02 business, absent the kind of unique opportunities that you have to create value, would be down about $150 million or so negative EBITDA.

A, I'm wondering if my math is kind of right. And B, if that is the case, are you hearing any chat? Because other folks obviously have to be in a similar situation. Are you hearing any chatter about potential plant shutdowns or other movement by the other TiO2 producers to try and rectify the situation?

First of all, Frank, I wouldn't say that your numbers are too wildly different than what I would put on the back of an envelope, if you will. I think I've correctly called the bottom of the cycle six out of the last six quarters. If there is one of our divisions, is we look at our budgeting process, that has some upside to it, it probably would be Ti02. I look at the discipline in pricing, and it is tough to be optimistic. On the other hand, I look at the pricing margins and so forth, and these are just simply at an unsustainable rate, because nobody is making anything.

When we look at capacities and capacities in the industry, I can only speculate on the competition. I would loathe to do that because I have absolutely no idea where they are going. As I look at our own capacity, we continue to review our capacity and the market needs and so forth. And, is it possible that we would be taking more capacity out sometime in the future, I certainly wouldn't rule that out. As far as the competition, you'll probably just have to ask them on their earnings call.

All right. That's helpful.

Peter, you did say that you remain committed to doing something strategic with the TiO2 business recognizing the economic impairment. You said as soon as market conditions permit. What percent chance would you handicap that being a 2016 event?

Well, I think that certainly by the end of 2016. When I talk about market conditions permitting, if I look at the pigments business, we are preparing and we're moving towards a spin of Ti02. That is our priority; that is our focus right now.

As we look at that spin, I think that you have to have a division that doesn't just hit positive cash flow for one week or a month, I think you have got to see that you are there so you're not trying to spin off to the shareholder something that is going to hurt their value. So, as we look at that spin, I certainly would think that by the end of this year, given where I'd hoped the prices would be, and what have you, in completing our cost initiatives, that we should be very close to being able to spin that at the end of the year.

The strategic options, that I'm speaking about, obviously, we're working on those aggressively as well, and should something occur before then, we obviously wouldn't have to wait until the end of the year. That could happen at any time when you're looking at a potential merger of sorts, or whatever that would take place that would create shareholder value.

All right. Terrific. Thank you so much.

Your next question comes from Edlain Rodriguez with UBS.

Good morning. Just a quick question for your longer term. Back in the days, you had like a $2 billion EBITDA target for the porfolio. Now you're in a different raw-material environment and the global macro issues that we're facing now. What do you believe is the earnings power of the portfolio in this environment? You could exclude TiO2 to if you want.

It probably, if we were to go back and look at those original, that original $2 billion, and where we would be off, the lion's share of that is around TiO2. As I've probably said, we're going to be taking our TiO2 business and we're going to be separating that business. That would be the single largest piece of that. The second biggest piece of that would be the falloff in crude prices that, obviously, has impacted the margin of our upstream Olefins, MTBE-- these are still good businesses. I'm just saying that we've enjoyed the last couple of years, historically high margins in these businesses for some period of time.

I think longer term these businesses are going to recover. I don't think crude prices are going to be at $30 a couple of years from now. I think there's a chunk of margin there. You've heard us this last couple of calls talk about our FX impact. That is fairly $150 million when you look at 2015. So between FX, between pigments and the fall off in crude prices.

But I think, fundamentally, as I said earlier, if you exclude the pigments business, if you exclude Ti02, specifically Ti02 from the rest of this business, we would've just completed one of the strongest years, on a margin basis, that we've had in our history, and we would be going into a year of 2016 projected to generate record amounts of cash and a record EBITDA to sales.

So, as I look at that, I am not sure that the $2 billion, if I take out the pigment side to that, I think longer-term, it's still a realistic and a viable target tissue to shoot for. But I think, again, in this lower crude environment, cash generation and margin expansion are going to be the things that, I think, will create shareholder value going forward.

Edlain, you remember, of the $2 billion, there was roughly $425 billion of the pigment's EBITDA in there, so if you exclude that and you use the FX headwind, that Peter mentioned, of about $140 million. That's a number, I think, that this company can hit in the next couple of years. Is $1.5 billion a number that we're capable of? Yes, I think that that's realistic. I mean, $4.5 billion.

And one last one on the share repurchase. You've done some so far. What's the appetite to do the remaining $60 million sooner rather than later?

Well, I think that that's something that we work very closely with our Board of Directors making sure that we have their support. But I think, that as we look at, as Kimo was talking about today, we look at a Company that this year will be generating record amounts of cash in spite of the sluggish economic environment, we think that there is real upside in the Company.

We're not sitting around just waiting for the economy to turn. The business ex Ti02 is trading at about 5 times EBITDA. I think that continuing to buyback shares in this area, in pricing is still a very good value to shareholders.

I would agree with that. Thank you.

Thank you.

Your next question comes from P.J. Juvekar with Citi.

Good morning, Peter.

This is Eric Detri in for PJ. Just on TiO2, could you update us on your inventory levels? Are you seeing any impact from the new Henan Billions Chloride plant in China?

I'm not seeing any impact from the Henan plant in China. I really don't have any idea as to what they'd be doing right now. If it were virtually anybody starting up a grass roots chloride plant with the technology being utilized for the very first time, in the very best of conditions, this is going to be a challenging start-up.

But, I have seen zero impact, and zero pounds coming into the industry that has affected our business. I'm not saying it's not there, it's just as far as it has affected our business. As we look at our days inventory of Ti02, that stays right around, we finished the year right around 60 days of inventory.

You asked about chloride. Today, in the current market environment that we are in, we would think that chloride, on a same-price basis, is probably the lowest margin technology out there. So even if Henan could start that up, it doesn't suggest that they would have any cost advantage globally. We would think that those margins are next to breakeven

Helpful. And then I noticed that on your slides, you called for an inflection point in Ti02 prices, are you willing to do the same or call a bottom in the MDI prices in China?

I'll always call the bottom in prices anywhere. (laughter) But I'm not sure that's going to actually happen. I think again, as we look at prices overall, I don't want to discount anything that we've said, but it's really tough. As we follow MDI prices, there literally are hundreds of different price points on that spectrum going from the most downstream derivatized specialized applications of MDI going all the way to the most crude components of MDI. And that will vary region by region.

But, as we look at component crude MDI prices today, well I'm not so sure about prices. Really the margin today, margins today are actually better than they were a couple of months ago. So, as we look at pricing, pricing is actually better today than it was 2 or 3 months ago. I certainly wouldn't say that these are as low as it is going to go. As a matter of fact, they have been improving the last couple of months.

Okay. Then, lastly, in your performance products guidance of similar EBITDA to 2015, what kind of ethylene margin contribution are you assuming? Is it similar to today's run rate, or do you see upside to the guidance if ethylene margins improve?

I think ethylene margins probably throughout the year will continue to have downward pressure. Again, we transfer our ethylene at a market price. And, with the new capacity coming on around the world, particularly North America, there is probably going to continue to be downward pressure on pricing. I think it's worth just noting in this division, this is the first time in a couple years that we have noted kind of a flat EBITDA one year to the next.

Given the fact that five or six years ago, the vast majority of earnings in this division came from the upstream more commoditized ethylenes, surfactants, ethylene oxide, ethylene glycols and so forth, and amines was something that was, rather the tale on the dog in this division. The last couple years, when you look at the pricing of ethylene has been cut more than 50% in the last year. The margins have been cut probably even more so than that this last year on ethylene.

That the division itself can remain as strong as it is, I think, is a real credit to the strength of our maleic, our amines and our more specialty, surfactants businesses. And those businesses, over the last couple of years, and in the next couple of years, will continue to improve and will continue to expand.

Great. Thank you very much.

Your next question comes from Hassan Ahmed, Alembic Global Advisors.

Good morning, Peter.

Good morning Hassan, how are you?

Very well, thank you. You talked about, beyond just a spinoff of the TiO2 business, considering strategic alternatives. As I look at the industry, most companies, if not all, have pretty stretched balance sheets within the Ti02 world. I'm trying to understand broadly speaking, what form that this strategic alternative would take?

Well, Hassan, it is an excellent question. It is one I'd love to delve into, but, given the discussions that are ongoing and the secrecy agreements, and so forth, that we have planned, I'd rather not speculate on any one thing that we're doing, for obvious reasons.

You've hit the nail on the head. That is certainly one of the real challenges that the industry has to deal with right now. We are in something of a unique position is that we can choose to do something with very little leverage or more leverage, or whatever. And so, but know that in order to get something strategic with somebody else, obviously, you have got to have a quid pro quo, you have got to have two parties willing to do something that's mutually beneficial.

I think the observation is very good. We think there's $10 a share of Huntsman equivalent of upside. That is simply, what, $400 million of EBITDA with a 5-times multiple of upside for Huntsman. And we don't want to put our business into a super leveraged balance sheet that's not sustainable, or has some risk of not allowing our shareholder to participate in a more normalized market.

Set aside a peak environment, just a normalized environment there's $10 a share for us. And so, a spin works. But if it is a strategic combination, it has to be with a partner that has a balance sheet that's sustainable and viable.

Very helpful. Just as a follow-up, sticking to the whole TiO2side of things, over the last couple of quarters, we saw some divergent trends as far as utilization rates went. What I mean by that is that you had some companies that on the back of weak market conditions and the like, scaled back their operating rates while others continued to run at elevated operating rates.

How is the environment looking today? Is the industry, in your mind, a bit more disciplined than the last couple of quarters?

I think any time you've had margins where they are, operating rates where they are and direction where they are, you have got to question the sanity and the common sense of an industry. I probably shouldn't say anymore, because I'll just get in trouble.

(laughter)Thank you, Peter.

Your next question comes from Laurence Alexander with Jefferies.

Good morning. Three quick ones. What's your sense, at current exchange rates, for your FX headwinds year over year? And then, to come back to your comment about the free cash flow. I think when you answered one of the questions, you made a summary comment of, well regardless of the working capital, there would be $350 million.

Just to be clear, that is $350 million plus the starting off from the negative free cash flow for this year and then whatever the year-over-year changes in the working capital build, or were you trying to say that there is extra cost cutting you can pull to offset if the working capital relief is less than the $140 million you booked in 2015?

I'll take the free cash flow, and you can do the foreign currency, because that's kind of your area. On the free cash flow, I think that we're looking at, at the free cash flow as the CapEx number and the restructuring. I think what I was trying to say in my comments was that, we've got a $300 million and then we have got a $50 million on maintenance between those things, that's really starting with the free cash flow coming from 2015, largely being flat or down $29 million, as it said in our slides.

That's what we're expecting. And the working capital is not factored into that $350 million improved number. I'm not saying we have got an extra pocket for or against the working capital. Again, as we see the trend in raw-material prices going where they are, I'm hoping that we'll get some further relief in that area.

Let me see if I can help. We think working capital benefit will be similar in 2016 as it was in 2015. So that gets you, I think, part of the way there.

Got it.

On FX, if you stay at current exchange rates, as you remember we saw the strength in the dollar about this time last year. So we would have a $17 million, or $20 million headwind in the first quarter of 2016 and then it would be probably be flat through the rest of the year; so, without headwind on a year-over-year comparison.

Lastly, on end-market demand, have you seen any regional end markets noticeably decelerate outside normal seasonality?

I haven't seen anything that would be material or alarming in the business, up or down.

Okay. Thank you.

As a matter of fact, I think if we go back a year ago, we were seeing a deceleration in the first couple of quarters last year, particularly in China that I'm not really seeing. I'm not seeing a lot of growth in China, but I'm not seeing the deceleration that we saw last year.

Okay. That's very helpful. Thanks.

The next question come from John Roberts with UBS.

Thank you. Can you hear me? I'm not sure there have been a number questions on Ti02, yet, so let me fire up another one here. Should we assume that your US JV operates at pretty high rates, irrespective of market conditions? And, if you do find some consolidation transaction, if you end up with a minority position, would that interest be transferable?

I think the Lake Charles joint venture with Kronos operates at industry utilization rates you'd find in the United States. I don't think it's any different than what you'd find in the industry in the US. To the extent it's transferable, I think it's probably more detailed than we want to give on this call.

Okay. Thank you.

Your next question comes from Roger Spitz, Merrill Lynch.

Thank you very much and good morning. You gave a little bit of a hint on this, but can you say what your Q4 2015 EBITDA for TiO2 pigment EBITDA standalone, including both Legacy, Huntsman Rockwood TiO2, excluding Rockwood's non-TiO2?

What I was pointing out in my comments, was that our legacy business for the year did roughly negative $50 million of EBITDA and that's all TiO2. I mentioned $115 [million] of EBITDA on the Rockwood businesses. The Rockwood TiO2 business, I don't have that right in front of us, but let's see. Fourth quarter it was probably negative $10 [million] for the quarter.

Perfect, thank you.

Just to clarify, Roger, it's negative $10 [million] for the total Ti02 segment within pigments and additives for the fourth quarter. That includes Rockwood and Huntsman Legacy.

Okay. So basically flat from Q3. Okay.

Yes, it's benefiting from some restructuring in the process, yes.

Thank you for that. In epoxy, was there competitive pressure in the commodity and perhaps in the solid epoxy resins, and as a net supplier of OER, can you give any insight into the LER pricing from Q4 versus Q3, as well as any insights MTBE and BPA pricing trends?

For the most part, we've gotten out of that BLR end of our business. To be honest with you, Roger, I just don't track that like we used to.

Okay. Thank you very much.

Your next question comes from Bryan Lally with Park Place.

Thanks for fitting me in. I'll just ask on the free cash side, maybe for Kimo.

You've outlined, at times, leverage targets, and then, obviously at 3.7, as you show in your slides, you are bit above that, would your intention be with free cash flow to focus on debt repayment throughout the year. Thinking about capital allocation, where do you expect that free cash flow to go?

I think we have $50 million left on a share repurchase plan. We may use $50 of that free cash flow to bring in those shares, but the rest would go to debt repayment.

The idea is still is, I think it was a 2.5 times target; is that how you think about things, regardless of what happens strategically on the Ti02 side?

Yes. Absolutely.

We would like the TiO2 to transaction to be a leverage-neutral transaction, given where Ti02 is. It is unlikely that that entity, whether it be a spin or combination is going to have much leverage on it, at least from Huntsman's side. And so, we would probably lose a breakeven EBITDA business inTiO2, but not to reduce our gross debt by any.

Understood. And then one last one from me, again, on the TiO2 space.

Peter, would you mind talking about how to think about potential for additional closures in Europe and how you weigh the cost of that which appreciably are higher because of social issues, et cetera, versus the negative-EBITDA contribution that you are discussing from those legacy assets. And, again, how to think about how you might make that decision on a go-forward basis if things remain weak?

Thank you.

Yes. I hate feeling like I'm trying to evade an answer, but, I think, given the time that the laws of the countries where we have operations and so forth, the notifications that are given to workers, and what have you, I'd probably be best to try to steer clear of the process and the procedure.

I will just say that as we continue to want to be most proficient in matching our capacity with sales and market demands. I think we've demonstrated in the past that our ability and willingness to close Ti02 capacity if we have got too much of it, and we'll continue to review that on a regular basis going forward

Okay. Thanks for the time. I appreciate it.

Latoya, this is Kurt, given the time, I think we have room for one more question.

Your final question comes from Bob Amensa with JP&C Asset Management

Thanks for squeezing me in there. Quick clarifications on cash flow. The first thing on flat EBITDA, it sounds like you're saying flat excluding that $95 million outage. So flat with EBITDA, $1.2 billion versus say the $1.3 billion, that if you added that $95 million back?

So we did $1.221 billion of EBITDA. We think 2016 will be similar to that number. Obviously, we lost $95 million last year and we're not going to, on a net basis, pick up that $95 million. Will get some, but we will lose some somewhere else. We will be, on a total consolidated basis, similar.

On the share repurchase program that you already did, the $100 million, I was a little unclear. You did it in January, but the cash balance at December, do I need to subtract $100 million, or was that already funded?

That was already funded.

Lastly, onTiO2, just CapEx, I felt like you had said sometime in the past you showed a breakdown by segment of CapEx. Is that segment about $100 million? If you got rid of that on day 1 of a certain year, would we take $450 down to $350 in CapEx, or what would we do?

Think of it as a roughly $80 million normalized capital. It's been higher in the last couple of years because of restructuring and SAP implementation and so forth with Rockwood.

So, more like $375 then or so. Okay. All right, that's all I had. Thanks.

Latoya, this is Kurt. That concludes our call today. We want to thank everybody for joining us.

As Peter mentioned, we will be hosting an Investor Day, here on March 2. If you're interested in participating in that, please reach out to the IR team. And, certainly, as you have additional questions, reach out to us. We're happy to engage.

Thanks again for your time.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may now disconnect. Have a great day