Huntsman Corp (HUN) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2016 Huntsman Corporation earnings conference call. My name is Dave; I will be your operator for today.

(Operator Instructions)

As a reminder, the call is being recorded for replay purposes. I'd now like to turn the call over to Mr. Kurt Ogden, Vice President Investor Relations and Finance. Please proceed, sir.

Thank you, Dave. And good morning, everyone. Welcome to our fourth-quarter 2016 earnings call. Joining us on the call today are Jon Huntsman, our Founder and Executive Chairman; Peter Huntsman, President and CEO; Sean Douglas, Executive Vice President and CFO; as well as Simon Turner, Division President of Our Pigments and Additives Division.

This morning before the market opened, we released our earnings for the fourth quarter and full year of 2016 via press release, and posted it to our website, huntsman.com. We also posted a set of slides on our website, which we will use on the call this morning while presenting 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 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 will also refer to non-GAAP financial measures, such as adjusted EBITDA, adjusted net income or loss, and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website at huntsman.com.

In our earnings release this morning, we reported fourth-quarter 2016 revenue of $2.395 billion, adjusted EBITDA of $256 million, adjusted earnings of $0.30 per diluted share, and free cash flow generation of $117 million. Importantly, we generated $686 million of free cash flow in the full year of 2016. I will now turn the call over to Peter Huntsman, our President and CEO.

Thank you, Kurt. Good morning, everyone. Thank you for joining us.

Let's start with slide 3. Adjusted EBITDA for our polyurethanes division in the fourth quarter was $131 million. MDI urethanes, which includes propylene oxide, recorded earnings of $131 million during the quarter. MDI volume growth was 4% globally for the full year, continuing the trend of strong demand in the mature economies of North America and Europe, with weaker demand in emerging markets. Importantly, our differentiated MDI sales volumes grew 6% in 2016.

In North America, we saw impressive growth in commercial insulation and composite wood product sales, driven by improved end-market conditions and continued product substitution. Underlying growth continued to be strong, driven by demand in automotive and commercial construction.

In Asia, although volume growth remained relatively flat, we grew our differentiated sales by 7% during the quarter. Overall, Asian profitability increased markedly during the quarter, driven by sharply increasing component margins, as a result of a competitor's outage. We expect these margins to return to more normalized levels during the first quarter, as production capacity reenters the market.

Our MTBE business recorded an adjusted EBITDA loss of $1 million in the fourth quarter. The average C-Factor, which is an industry proxy for MTBE contribution margins, decreased to $0.57 per gallon from an already low $0.76 per gallon during the prior year's period. The low C-Factor is attributable to high gasoline inventories and low refining margins, as well as a spike in butane prices relative to oil during December. The C-Factor is currently lower today than during the fourth quarter. We expect this to have an adverse impact on first-quarter MTBE earnings.

We have planned maintenance at our MDI facility in Rotterdam in the first half of 2017. This occurs once every four years, and is scheduled to begin mid-March and be completed towards the end of April. We estimate the EBITDA impact will be approximately $5 million to $10 million.

We continue to strategically position this business by aggressively driving for higher differentiated growth in downstream markets. Our differentiated sales comprise approximately 70% of our MDI revenues, but more importantly, approximately 85% of our MDI EBITDA. We will continue to direct a large majority of our capital expenditures towards downstream growth, utilizing our global footprint to focus on collaboration with key customers to develop initiative, innovative solutions that enhance product performance, and business competitiveness.

Despite our planned maintenance activities and increase in raw materials, notably benzene, we expect our MDI urethane business and adjusted EBITDA to increase modestly in 2017. We also expect MTBE margins to improve slightly during 2017 compared to 2016. However, challenging market conditions with low oil prices and the glut of refining products could temper any MTBE improvement.

While our polyurethanes division was relatively flat from 2015 to 2016, I think it should be noted that our MDI urethanes business improved year over year by nearly $40 million. This is the core of our polyurethanes division, and ends the year poised for continued improvement in 2017.

Let's turn to slide 4. In the fourth quarter, our Performance Products division recorded adjusted EBITDA of $68 million. During the quarter, we experienced soft demand in the wind market, agricultural chemicals, and oilfield products. We expect the volumes to pick up in 2017, particularly in the Americas region, as demand in the agricultural chemicals and oilfield markets recover from the low 2016 levels. Sequential margin improvement in intermediate chemicals, and certain self-help business improvements, led to a very modest seasonal decrease in EBITDA from $70 million in the third quarter to $68 million in the fourth.

As a reminder, we have planned a maintenance turnaround on our ethylene oxide and ethylene glycol units in Port Neches, Texas, during the second half of 2017. This maintenance occurs once every four years and will last approximately two months. With a cash cost of approximately $50 million, the EBITDA impact will depend on economics at the time, but we currently estimate this to be approximately $15 million.

At the end of the quarter, we completed the sale of our European surfactants business to Innospec at an enterprise value of $225 million. This business represents approximately $28 million of our annual EBITDA in 2016.

2016 was perhaps the most challenging year in nearly a decade for our Performance Products division. We saw growth slow in China and shrink in some applications for wind, drilling, and agricultural segments. Looking into 2017, I expect these segments to slowly recover, and the division to improve. I'm encouraged that the division has bottomed out, as our fourth-quarter results were essentially flat with the third quarter, something we've never seen in this division.

Let's turn to slide 5. In the fourth quarter, our Advanced Materials division recorded adjusted EBITDA of $50 million. Sales volumes decreased, primarily due to soft demand for lower value based liquid resins in our coatings and construction market. This is partially offset by continued strong growth in the electrical and electronic markets, while aerospace remained stable.

EBITDA margins improved primarily as a result of lower raw material costs and lower fixed costs. This business generates strong, stable free cash flow, and generated a 1-to-1 cash EBITDA ratio in 2016. We expect adjusted EBITDA to improve modestly in this business in 2017. However, we expect a slow start to the year, as the business is impacted by the higher-cost inventory running through the P&L in the first quarter, as we moderate our base liquid resin production. This one-time event will cause first-quarter earnings to be similar to fourth quarter of 2016.

Turn to slide 6. Our Textile Effects division adjusted EBITDA of $14 million in the fourth quarter. This now makes five quarters in a row of year-over-year quarterly earnings growth for the business.

Sales volumes grew at 8% compared to the prior year's period. In key markets that we target to grow our business, such as China, India, and Bangladesh, sales grew by 9% compared to the fourth quarter of the prior year, but particularly strong growth of 16% in China. The return on net assets for the last 12 months for this business is 13%, a meaningful improvement compared to the prior year.

In 2016, Textile Effects generated a 1-to-1 ratio of cash to EBITDA, in large part due to a reduction of working capital. We expect to see an improvement of adjusted EBITDA for this business in 2017.

Let's turn to slide 7. Our Pigments and Additives division earned $46 million of adjusted EBITDA in the fourth quarter, a significant improvement, compared to break-even earnings in the prior-year period. Our TiO2 business earned $33 million of adjusted EBITDA during the quarter, while the performance additives portion of our business earned $13 million.

Average selling prices for functional TiO2 increased 3% compared to the prior quarter. We were encouraged to see the successful implementation of a price increase during the fourth quarter, something we've not seen since 2011. With this price increase, we've implemented three consecutive quarterly price increases, and captured approximately $300 per ton since the first quarter of 2016. We expect this pricing momentum to continue into 2017.

As for volume, the seasonal drop-off in sales volumes in TiO2 in the fourth quarter was less than we typically experience. We believe this is primarily the result of strong demand. As previously indicated, adjusted EBITDA doubled from 2015 to 2016, and we expect to improve meaningfully in 2017, due largely to price increases in TiO2.

As previously announced on January 30, we experienced a fire at our Pori, Finland, TiO2 manufacturing facility. We are committed to repairing the facility as quickly as possible. The site is insured for property damage and earnings losses. We have a $15 million property damage deductible, and a 60-day business interruption deductible. We've already received EUR50 million from our insurer as an initial installment payment.

We estimate the business interruption loss for these initial 60 days, representing a combination of unabsorbed fixed cost and the economic impact from lost sales volume will negatively impact adjusted EBITDA during the first quarter by approximately $20 million to $25 million. This amount represents our business interruption deductible from April onward. We will be reimbursed for our earnings losses. To be clear, this does not represent the EBITDA of the facility.

While we're still assessing the extent of the damage and time to repair, we will be restarting the wide end of this facility gradually over the next two months, using raw materials from other Huntsman facilities. The more damaged black end of the Pori site will most likely take several more months beyond that. As soon as we are in a position to more definitively tell the market a firmer date, we will do so.

I would like to address another matter which recently became public. On February 6, 2017, we filed a lawsuit against Rockwood and Albemarle Corporation as Rockwood's successor, as well as certain Rockwood executives for fraud and breach of contract involving the Augusta, Georgia, color pigments facility. While the court will ultimately determine the appropriate amount of damages, Rockwood and its executives promised Huntsman that the Bluebird technology being installed in Augusta was a proven game changer and would deliver cost savings to Huntsman in excess of $30 million annually, or approximately $300 million over the life of the plant. We intend to vigorously pursue this claim.

However, I want to be clear on the economic impact to the Business. We don't expect deterioration in our color pigments business from current earnings levels. Rather, this lawsuit seeks compensation for the full economic benefit we were promised but did not receive because of the fraud.

The decision to pursue litigation is not an easy one, as we are not a litigious company. However, we feel the evidence is overwhelming, and that our Huntsman Corporation shareholders deserve compensation. Before sharing some concluding thoughts, I'd like to turn a few minutes over to Sean Douglas, our Chief Financial Officer.

Thank you, Peter. Let's turn to slide 8. Our adjusted EBITDA increased to $256 million in the fourth quarter of 2016, from $240 million in the prior-year period. During the quarter, adjusted EBITDA in our Performance Products and Polyurethanes businesses was impacted by approximately $20 million from temporary weather-related and other production outages. Sales volumes increased across most of our businesses.

Overall margins increased moderately, primarily due to stronger MDI and TiO2 prices. Compared to the prior quarter, our adjusted EBITDA decreased to $256 million from $272 million in the third quarter. The impact of seasonally lower sales volumes was partially offset by higher margins.

Turning to slide 9, at the end of 2016, we had liquidity of $1.208 billion This is an increase of $185 million from the end of 2015. As Kurt mentioned, in 2016 we generated a record $686 million of free cash flow, through reduced spending and intense focus on working capital. We reduced primary working capital by $304 million, primarily from targeted sustainable reductions in inventory, where we reduced overall days inventory by more than 10 days. This free cash flow generation enabled us to strengthen our balance sheet by repaying $560 million of debt during the year.

On December 30, we received a $199 million cash payment in connection with the sale of our European differentiated surfactants business to Innospec, and quickly prepaid $260 million of our bank debt. During 2016, we spent $421 million on capital expenditures, and received approximately $31 million of capital reimbursements from our customers and joint-venture partners.

During 2016, we recorded income tax expense of $87 million, and paid $40 million in cash for income taxes. The combination of significantly lower US earnings, and higher earnings in countries with valuation allowances, resulted in a low adjusted effective tax rate of 22% in 2016. We expect our long-term adjusted effective tax rate to be close to 30%, and our 2017 rate to be slightly less than that.

We remain focused on generating free cash flow in 2017 and continuing to strengthen our balance sheet through additional debt reduction. On slide 9, we have provided you with certain estimated key free cash flow components for 2017. Please note that this table does not give pro forma effect for the pending spin of our Pigments and Additives business.

We expect to spend approximately $400 million in capital expenditures. As we look ahead into 2017, our working capital position, we expect to retain the 2016 step change and capture savings from improved inventory days.

Assuming market pricing economics remain consistent with the present, we would expect a moderate use of cash from working capital in 2017, resulting from business growth. We estimate net overall cash taxes to be close to $0, given a refund we expect to receive of approximately $90 million in the first half of 2017.

We estimate that pension contribution in excess of pension expense will be higher in 2017, as we increase funding. Restructuring expenditures will continue to drop, and should be around $75 million, of which approximately $35 million is related to the new business improvement plan in the Pigments and Additives business, which we have indicated will generate an additional annualized EBITDA run rate of $75 million by the end of 2018.

Lastly, in contrast to 2016, in 2017 we have various large turn-around projects that occur every 4 to 5 years, and we estimate that related cash funding for capitalized maintenance will be significantly higher than in 2016. As we sit here today, without taking into account the effect of the spin of the Pigments and Additives business, and assuming our present view of energy and raw materials, we believe our free cash flow generation in 2017 will be greater than $350 million. Associated with the pending spin, we estimate approximately $100 million of one-time costs in 2017. I will now turn the call back over to Peter for some concluding remarks.

Thanks, Sean. Our Companies have the objective of improving the quality of our earnings, and we continue to make progress in this area. MDI urethanes continues to show steady and impressive growth, with differentiated MDI volumes growing 6% compared to last year, and representing 85% of the MDI EBITDA. Advanced Materials and Textile Effects have become solid performers, with steady and modestly improving earnings. Our Performance Products business is poised for recovery in 2017. Has TiO2 prices have rebounded, our Pigments and Additives divisions doubled its earnings in 2016 from the previous year, and earnings are expected to improved meaningfully in 2017.

We've also delivered on our commitment to separate the TiO2 businesses through the announced spinoff of our Pigments and Additives division. Turn to slide 10 and look at some of the highlights of the spin-off considerations. We filed an initial Form-10 with the SEC on October 27, and on January 17 we filed an amendment which included, among other things, the name for the new company, Venator Materials Corporation. Additional information, such as capitalization, additional pro forma information and other matters will be provided in subsequent amendments to the Form-10. Venator is incorporated in the US, and we plan to have Venator's shares listed on the New York Stock Exchange, using the ticker VNTR.

We continue to make progress with the IRS towards retaining a 40% economic interest in Venator, with 19.9% of the voting power, allowing us to capture the anticipated appreciation in value associated with an improving titanium dioxide cycle. This would be an additional significant reduction of our debt, and strengthening of our balance sheet.

TiO2 prices have steadily improved in 2016, and are expected to improve further in 2017. In addition, we've identified $75 million in annual EBITDA business improvements, incremental to 2016 earnings. Improving TiO2 prices and the business improvement program will further strengthen the financial wherewithal of Venator. We continue to proceed with all preparations to spin in the second quarter of 2017.

The impact, if any, of the fire on the timing of the spin is not yet fully understood. We intend to keep the market informed as we progress.

As we look back on 2016, we also saw a major improvement in our cash generation. We will continue this focus throughout 2017, as the reduction of our debt remains a high priority. Looking into the remaining Huntsman Corporation divisions of Polyurethanes, Performance Products, Advanced Materials and Textile Effects, we see improving earnings that meet or exceed global GDP. Throughout 2017, I believe we will continue to generate free cash flow, execute our Venator spinoff, and see improving results from all of our four divisions. We look forward to a great year. Kurt?

Thanks, Peter. Dave, will you explain the procedure for questions, and then open the line?

Certainly, thank you.

(Operator Instructions)

Aleksey Yefremov, Nomura Instinet.

Good morning. Thank you.

You mentioned in your slides that in the fourth quarter, Asian MDI polyurethanes benefited from competitor outage. That outage has ended and its strength seems to have continued in the first quarter. Do you think that this continued strength is due to something more sustainable, such as underlying supply and demand, or is this due to maybe some planned maintenance and seasonality?

I think it's a little too early to say exactly what it is, but we are seeing decent demand continue in China. One of our largest competitors there has publicly announced that they have put off some maintenance and turnaround work in an attempt to build inventory, which would tell me that demand across the board is stronger than usual.

We did see prices increase because of industry outages in China, specifically in the fourth quarter. And we would have expected this new capacity, excuse me, as the repair capacity came back in March for these margins to diminish. They've come up a little bit, but, again, the markets feel pretty good, and I hope that we can continue to take advantage of that.

Great. Thank you, Peter. And to follow up on your comments on the quarry outage, is it fair to summarize that overall downtime, we are looking at four to six months, and then total cash costs for Huntsman, including the insurance reimbursement, could be around $20 million to $25 million?

I would say that $20 million to $25 million is going to be what we will be seeing on the P&L in the first quarter. And as we look at the timing, look, we will be starting the facility up as soon as possible. There are still parts of the facility that we are unable to even access at this point. When we talked about the timing and so forth, it's just too early to tell.

And I can just clarify one comment there. The cash impact will not only be the [$25 million] business interruption that Peter mentioned, but there will be a $15 million deductible for physical damage, which makes the total out-of-pocket cost, call it, somewhere around $35 million to $40 million.

Okay. Thank you very much.

John Roberts, UBS.

Thank you. In your previous guidance for pigments, normalized EBITDA of $400 million. How much lower should we adjust that for the Bluebird disappointment?

I think that, that $400 million is purely around TiO2. That did not include color pigments.

Okay. So, do you want to at least let us know in terms of what the delta is on Bluebird?

Let's make sure that we understand that. What we are seeking from the represented economics of Bluebird does not take away from what we would have expected to be the $400 million. I think that had the Bluebird technology worked as it was represented to us, that $400 million would've been a higher number.

I want to make sure -- I said that the $400 million was TiO2. That $400 million included the color pigment. The TiO2 division, I meant to say.

It includes TiO2 and the color pigments, and so we would stand by the $400 million as a normalized number for the division of TiO2 in color pigments. And what we would have liked to be here saying is that we would've expected that $400 million to be a higher number, had the Bluebird technology worked the way that it was represented to us, [to our Board].

Thank you. And as we go through the new ethylene startups here in the Gulf Coast, you buy about half of your ethylene, I think. Can you update us on your thoughts about trying to get a longer-term contract on ethylene? Maybe as we go through what might be a weaker period for ethylene?

I think that as we look at ethylene, and a lot of that ethylene is done on a tolling basis, so our customers are actually buying the ethylene, bringing it to us, and we are tolling it. We also are large merchant buyers ourselves.

Look, I look at a lot of the capacity consumption versus utilization, and so forth. I feel there is a wave of ethylene that's going to be hitting the North American markets quite substantially over the next couple of years. I'd rather be probably a spot buyer than a contract buyer.

And we will probably continue to have the same purchasing strategy we've had the last couple of years, and that will be leaning towards a spot price position, and we will have some of that covered as well by contract. But I can't imagine with all the ethylene that's going to be coming into the market that it's not going to be a buying opportunity.

Thank you.

Thank you. Hassan Ahmed, Alembic Global Advisors.

Good morning, Peter. Peter, I just wanted to quickly chat about the titanium dioxide side of things. Obviously, demand is looking good. It seems utilization rates are tightening. And profitability seems to be improving quite markedly.

So, my question is twofold, one is, what are you seeing on the inventory side of things? And second, what are you seeing on the trade side of things? Meaning, are you beginning to see utilization rates in China, in particular, rise, and China take more and more part in the export markets?

Yes. I think, Hassan, this may be the first time that you actually hear me say this in my entire career. I wish we had more inventory in TiO2 than we actually have. We are in the low-50 days, which is where I'd like to be if it weren't for Pori, but because of Pori, I wish we had a little bit more inventory.

I can't tell you exactly where the industry is, but if you take what little public information is out there, it would tell me that they're probably a bit higher, maybe in the low to mid-60s, the number of days on inventory. So, going into what will be starting next month into the buying season, I think those are pretty low inventory, compared to what it had been the last couple of years.

At this point, I have not anecdotally heard of Chinese exports coming into the European/US markets that would have any material impact. I've got Simon Turner here, who will be the soon-to-be CEO of Venator. Simon, would you care to comment on anything that we have seen out of China?

Yes. Thank you, Peter. Hassan, we have seen the continuing trend of Chinese exports, namely mainly into greater Asia. And the kind of levels we've seen in Europe and North America pretty much have the same, low-5%, sub-10% type of levels that we've been seeing over these last three or four years.

We don't anticipate that to change tremendously, but to your point, we do see gradual timing of this market, and as we see our demand rising and improving.

Very helpful. As a follow-up, if I may. Around the free cash flow guidance of 2017. Large component obviously of that is a continuation of the working capital improvements that you guys have seen.

And in the prepared remarks, you talked about the sustainability of these working capital improvements, and you cited a 10-day step change, or reduction in the days of inventories across the Company. Could you explain that a bit further?

Why do you feel those lower inventory levels are sustainable? Is it a new ERP system? What makes you comfortable with those lower levels of inventory? That is the first part, and the second part is around CapEx.

You are guiding to $400 million in CapEx for 2017. If you could also remind me where maintenance CapEx levels are, and how that number compares to maintenance levels? Just trying to understand, A, the sustainability of the working capital improvements, and B, these lower CapEx guidance figures.

Well, as you know, Hassan, some of our divisions have been going under some restructuring. I think that when we look at a lot of the restructuring, same place with textile effects, advanced materials, and even some of our other divisions where we did not necessarily publicize a lot of that, I think, quite frankly, to be honest with you, a lot of our attention was drawn to our costs and were drawn to expanding the Business.

I think, certainly something that -- I take fault of this as CEO, we could have perhaps started a little bit earlier. It was a more intense focus on getting our inventories and getting our free cash flow right. I think this last year that was certainly a top priority.

I wanted to make sure that as we generate free cash flow, that we are just not sucking in our gut, and we are seeing inventory drop for a quarter or two, and then next year it will all come back out. I think that the inventory improvements that we've made, the 10-day reduction that we've made, is a material step, and I think it's a permanent step.

And we've looked throughout the entire system from warehousing to shipments, to plants, to our needs at each facility, and so forth. And I think that these are permanent improvements. I think that as we look in 2017, we are going to continue to see, I am hopeful that we will see another two to three days of improvement.

Every day in a company this size, obviously tens of millions of dollars. I would hope that we would continue to see that, days of improvement this next year in 2017. However, that is going to be offset a little bit by the value if we continue to grow the Business in the margin and the pricing of the Business.

That is going to be offset, naturally, by the value of the inventories, even if the inventories don't expand in volume, they will expand in value, which will take cash. We are focused on both of those things, and I think that's something that we want to continue to focus on. When we look at our CapEx, I think that where we have been with our CapEx, [$450 million], I think those are pretty normalized levels of CapEx.

And before that level, I would remind you that we had some pretty large projects that we had related to the Rockwood acquisition, related to some of the restructuring that we were doing, and so forth. And as we look at our maintenance CapEx, I would think that when we look at maintenance, [EH&F], that should be around $250 million. Obviously, at times of real distress, if we were to repeat 2007, 2008, we certainly can get that down sub-$200 million.

But I think that on a comfortable, normalized run rate, that we're probably looking between $200 million and $250 million for that entire maintenance and EH&F. And so that would include not just the environmental necessary spends, but what we feel needs to be on a sustainable, ongoing basis.

Very helpful, Peter. Thank you so much.

Thank you. Kevin McCarthy, Vertical Research Partners.

Hi, this is Matt on for Kevin. I just wanted to touch a little bit on the one-time separation costs for Venator around $100 million. What should we estimate of those recurring string of costs for that business as it becomes an independent entity?

The $100 million, none of that what I would call stranded or recurring cost. That is all related to one-time setup of IT and reorganization of legal entities and things like that. It's a one-time charge.

Okay. And to maybe piggyback a little bit on Hassan's question on maintenance CapEx levels. Do we know what these levels will be for the independent entities, both Venator and RemainCo?

Matt, we generally think about capital for Venator at being roughly $100 million, or so. Maintenance, within that $100 million is going to be approximately $50 million to $60 million.

Okay. I appreciate it. Thank you.

Thank you. Jim Sheehan, SunTrust Robinson Humphrey.

Hi, this is Matthew Stevenson, on for Jim. I want to ask you on your opinion on your ability to pass through the recent movements in benzene prices?

We feel that the markets are sufficient that we will be able to move those through on a timely basis. Again, they won't always match up day to day, but I would hope that within the quarter itself, that you should be able to, within a two to three-month period, by the time the benzene has flushed through our systems, that we should have been able to affect price increases. So, I feel confident that the markets are such today that we will be able to adjust our prices accordingly.

Got it. And then on slide 10, you provide a series of annual EBITDA improvements, I think it's meant to be for the Pigments and Additives business.

I noticed that the 2018 increase is quite a bit larger than the increases in 2017 and 2019. Could you clarify why that would be the case, and maybe quantify that? Is a $75 million annually, but I don't know what the --?

A lot of that is timing. As you implement and you put this stuff through, and you look at it on an annualized basis, many of these projects will be started in 2017, and in order to see the full impact of it, you have to have a full 12 months.

It's not to say that you look at the slide, it looks like we're only doing 15%, 10% of the projects in 2017. What we will be doing, the majority of the projects will be started as quickly as possible in the first 6 to 12 months. But a lot of that is just the timing on the implementation and when they are completed.

Is meant to be, you say $75 million a year, is that meant to be an average? If you take the three years of improvement and divide by three, that would equal 75 or greater, or even in the worst year, a $75 million improvement?

I think that would be $75 million on a per-year basis, on average.

Got it. Thank you very much.

Thank you. Laurence Alexander, Jefferies.

Good morning, this is Dan Rizzo, on for Laurence. Could you give us an update on how you're thinking about leverage targets for the levels for Venator and Huntsman post spin?

Yes. Dan, we've said before that we believe that the leverage will be similar to what the leverage ratio is on an LTM basis at Huntsman Corporation.

Think about it in a similar-type basis, as we lead out. That will quickly delever in Venator as it continues to have pricing improvement and business improvements going forward. That will be the maximum leverage for that company as it comes out of the box on an LTM basis.

Okay. But just given the percentages, that would suggest that in the beginning at least Venator would have a greater percentage than the spinout was -- that EBITDA breakup, just given general transfer, things like that?

Not sure I follow your question on that one, Dan.

You are saying that you will have similar, last 12 months, leverage ratios, but with the assumption that Venator makes a payment to Huntsman post spin, I would think that their leverage levels would initially -- they would have initially higher percentage of the leverage than Huntsman, correct?

No, I don't follow that, I don't think so. I think what they have is, they will have a similar leverage amount, when you think about a turn of EBITDA, debt to EBITDA that Huntsman Corporation has at the time it spins.

It will have that amount of debt, and you're right, Huntsman intends to pull that amount back into Huntsman Corporation. But it will have that level of debt, and it will quickly be able to reduce that debt, and over time, with its increased earnings, it will be levered.

Okay. Thanks. And then, across the entire portfolio, what is the net impact of butane prices at current levels, compared to where they were in 2016?

I'm sorry, you're saying what's impacted, or how much is it?

How much is it?

It's, let's see, if we look at the fourth quarter of where we are today, it's around $0.85 a gallon. A year ago at this time, it was around $0.60. And currently, as we look in the first quarter, right now, it's around $1.20, $1.25. From the fourth quarter of 2015 to today, it's doubled.

All right. Thank you very much.

Thank you. Robert Koort, Goldman Sachs.

Thanks, good morning.

Good morning, Bob.

I'm well, thank you. I was wondering if you guys could talk about what you see in the industry, in terms of the philosophy on pricing for this upcycle? Obviously, you're just in the early days, but the prior upcycle was extreme and quick, and had a pretty negative hangover effect, that a couple cycles before that were a little more gradual on pricing.

Can you talk maybe about what your intent would be? Is it get as much as you can, while you can? Is it be a little bit more diplomatic with the customers to have more of an extended upcycle? Has anything changed in light of maybe the past cycle, and again, the painful effect of the past downcycle?

Let's remember that we are a participant in the market, and anything that we say, Robert -- Bob, I don't want to represent our competition, and I don't want to represent the market. I think that anytime, whether it's Huntsman that receives rapid and sudden price increases on our raw materials, or our customers, I'm not sure that this is beneficial to either side, because they are typically short-lived.

I think that as you look at where we are in TiO2, there is some elasticity in that the margins got so bad and prices got so low, as we were seeing a few quarters ago, that these were wholly unsustainable sort of rates. I would think that as we look at the prices, the momentum that's building now, the supply and demand that's building now, the capacity that's in the overall market, I would hope that this would be a longer, more sustainable, perhaps a more gradual sort of an increase, and not just a spike to where people are panic buying, and subsequently people then panic selling pick, which is somewhat what we saw last time.

Look, as you know in this industry, the best laid plans often go outdated very quickly. You just asked for philosophy here. Simon, anything in there you want to change?

Yes, and I think that's right, Peter. As more measured steady approach we've seen the $300 captures off a $450 an ounce these past three quarters. You've seen fresh announcements of that scale, and there can be some difference in Europe because of the weakened euro against the dollar these past number of months.

Broadly speaking, it's a more measured, sustained, we are encouraged by our pricing progress going through 2017, continuing through into 2018. And we fully anticipate, and we've seen that our feedstock and ore suppliers have taken similar type of measured approaches with us, and I think that's for the pattern we continue to see.

Can you give us an update on what's happening in China? Obviously, as a consequence of some of the other commodity markets and governmental interventions, you saw a pretty massive increase in ore costs there. Is that reversed at all, as we have seen some of those commodity prices soften a bit, and what is your sense on incremental capacity available out of Asia?

Bob, I will take that into parts. To your first point, we have seen some higher import ilmenite prices into China these past months. We've also seen, as a result of some of the governmental initiatives around the environment, there are some curtailments and reductions in operating rates of key facilities that are down to constraints around the 70% kind of level.

It is less than clear whether some of those are complete, and through those we suspect some of those continue. But I don't think if you look at the latent capacity in China, I think we could continue to see some kind of light nipping up of exports into the Asian region from China.

Terrific. Thanks.

Thank you.

Thanks. Frank Mitsch, Wells Fargo.

Good morning, gentlemen, and congrats to Sean and Kimo on their new roles. To follow up, Simon, you mentioned the 3%, or Peter mentioned the 3% sequential increase in TiO2 price in Q4.

Can you talk about where you saw that geographically, parse that out geographically? And what have you been seeing so far, here realizing so far here in Q1?

Yes. Let's pick up with Q4. You may recall that there was a [no-announced] North American price increase in the fourth quarter. That's why you saw a lower, overall price capture.

We expected and achieved price captures that we had represented on prior calls, et cetera, the 50% at two-thirds types of range. That's the fourth quarter.

In the first quarter, we've got these announcements running, similar types of levels by all markets. I think that as we said before, you should think about this as a consistent and steady approach to pricing, and that's possibly where this lands.

No offering of what percent you're seeing so far in Q1? Just consistent? Is that fair?

Yes. I think that when we are still in discussion with customers and so forth, it's premature for us to talk at this point.

Understood. And, Peter, can you envision a scenario where you would go forward with the Venator spinoff prior to the restart and demonstration of Pori coming back online?

Yes. I could envision that. I'd have to be very, very certain that we were very close to a startup, and that there wasn't a lot of start-up risk. I think that the last thing we want to do is have a spin that takes place under any sort of a cloud of uncertainty.

And I think in order to be able to maximize value on both sides, we need to have absolute clarity and certainty about where we're going and how we are operating, and plant operations and so forth. As we get closer to that date, we will certainly be taking those things into consideration in that decision.

Very helpful. Thank you.

Thanks. P.J. Juvekar, Citi PB.

Good morning, this is Eric Petrie on for P.J. Paint volumes are growing at 1% to 2%, but TiO2 volumes are growing faster than that. Does that indicate some restocking by customers, given rise in prices, and could you give any qualitative comments on your customer inventory levels?

Yes. I think that when we see the outlook there is going to be some seasonal lumpiness. I wish there was more consistent buying with consumption patterns, but our industry has a tendency to be the shock absorber of being able to ply when and how much our customers want.

So, I think that when you see quarters like this, when people are building stock to go into a heavy paint season, that you typically would see buying ahead of the consumption of TiO2. I would not be overly concerned with that, but -- and there are other elements as well in the plastics compounding area, and other applications in TiO2 that go beyond just the paint capacity.

Okay. And, secondly, could you give some guidance behind your contract renewals for mineral [stands] and how are input costs trending for you?

Yes. I will pick that one up, Eric. We purchased a broad slate of advantaged sulfate ores, as you know. We have a high number of choices.

We have phased range of contracts, which allows us to some protections and some a better way to manage our Business. I think it's fair to say that we feel good about that. And manage any profile of pass-through custom feedstock producers.

In terms of trends, I mentioned earlier some uptick and some ilmenite price, and particularly into China. There is what the markets see, and obviously, we're less in a position to answer on behalf of the market for ourself, of course, we can say that we see some nominal headwind. We expect some inflationary pressures in ores as we go through this year. But we still expect to continue to increase our margins through 2017.

Thank you.

Thanks. Roger Spitz, Bank of America.

Thank you. Good morning.

On the Rockwood lawsuit, how does that lawsuit impact the timing and perhaps even the feasibility of spinning off Venator? Presumably, Venator would be a lot smaller if the judge allows you to make a rescission or unwinding of the Rockwood acquisition as you are asking for in the suit.

Yes, I don't think that we would want to really get into that, Roger. It's a good question, but at this point, I would not even want to begin to speculate what a judge may or may not say or rule.

Understood. On LER, if I understood it correctly, it sounds like you're destocking LER in Q1 2017. Were you running with too high an LER inventory, are you seeing LER underlying demand down? Or perhaps you're walking away from some low-margin LER business and simply want to right-size your LER inventory due to that?

I think it's the combination of all of those. I think we are seeing LER margins dropping, and we are in the process of ourselves making sure that our inventories are at the proper level, and so when you underrun a facility because demand is down and margins are dropping, you underrun those facilities, you have your fixed costs spread over fewer pounds.

And that's a bump, or in this case, a pothole, that you will see in our earnings in the first quarter. We believe that to be a one-time event. LER, because of the actions we've taken over the last two years, is a much less impactful part of the Business.

Thanks, and lastly, did I just hear correctly in the remarks that the Q4 2016 MTBE EBITDA was a negative [1%] again?

Yes. Unfortunately, you did hear that right.

Thank you very much.

I would also remind you that our propylene oxide business is a strong business. It's a healthy business. It's a good contributor, strong contributor to our MDI business.

So, what we've done in the past is we've had our propylene oxide and MTBE earnings up until this past year combined into one, and I think a more accurate reflection is to see that PO MDI margin together, because they both feed on each other. They are products that we blend together, and so forth. I think it's a more accurate reflection to the overall health of the MDI urethane story.

Understood. Thank you very much.

Thank you. David Wang, Morningstar.

Good morning, everybody. I just wanted to follow up on polyurethane. If we take out the MTBE impact on the adjusted EBITDA, how do the margins for the MDI side do? I guess year on year and for full year?

Margins on that business for the full year and take out MTBE is right in the mid-teens, and if you look at the last couple of years, that trend has continued to improve and increase as we have moved further downstream. Obviously, our ultimate objective in that business is to take out volatility and to continue to see a strengthening in the margins in that business. I think that, that business is not peaking, and I think that as we look at the overall strength of that MDI business, that's going to continue to be a strong core of our business, as we push towards the 20% sort of margin level in that business.

Great. And can you talk a little bit about the supply and demand dynamics for MDI going forward? What sort of projects you're seeing coming online and how demand is trending?

Well, I mean, demand continues to be strong. Surprisingly, as you look at where the real strength is coming globally, it's coming from North America and from Europe. And as we continue to look at that, those are the large bases for us of our downstream plan and of our largest facilities, our most competitive manufacturing sites, and so forth.

The next major project to come onstream globally, I'm talking about a grassroots, standalone project, is our project. Let's see, I guess would be the Sadara project, at Dow Chemical in the Middle East. Exactly when that will be coming up, probably the later part of the year.

And then our project, which will be coming up this next year. I think that as we look at that, for the next couple of years, not a lot of new capacity coming into the market. And the market, I think, continues to grow at solid single-digit growth rates.

Thank you.

Thank you. Christopher Perrella, Bloomberg Intelligence.

Good morning. I wanted to delve into the restructuring. I realize the cash outlay is trending down.

What projects are you still working on? And how should I think about that trending, continuing into 2018?

Well, I'd say there isn't one majority that's taking up the lion's share of that. We continue to look at our cost footprint and business improvement plans, and so forth, in our textile effects business.

And we also have that in our TiO2, as well as in our performance products. Of the $70 million, $75 million, close to half that is going to be from TiO2 and the Venator restructuring that $75 million project that's starting off.

Okay. Will the performance products and textile actions and cash outlay be done by the end of 2017?

Pretty close. Generally, textile effects still has some cash flow as we restructure the Swiss area of that business, and there is still some [elongated] cash flow that will go out. But it's not significant, and we also have some inflows that will offset that as we go forward.

You're talking net-net singular millions of dollars, beyond 2017.

I appreciate the clarity on that. And looking at the net debt as we go through the year here, you ended at [3.3%], do you expect that to change materially by midyear, and should we be thinking that Venator is coming in at 3 times debt to EBITDA?

I would just say this. I would expect that the ratio that we ended the year at to be pretty similar as we go into a pre-spin in the second quarter. First quarter, as we draw down working capital, will be a modest increase in terms of our leverage ratio, just because of seasonality as we do on inventory.

But I'm not going to comment yet in terms of the size of debt that we expect to put on Venator, other than we think that it will be roughly in line on the leverage ratio at Huntsman Corp., depending on the LTM EBITDA of Venator at the time.

Okay. Thank you very much.

Thank you. We now have an the question from the line of Jim Sheehan, SunTrust Robinson Humphrey.

This is Matthew Stevenson on again. A quick question about your interest expense.

In 2017, you obviously paid down quite a bit of debt at the end of December, and I noticed that in the cash flow slide, it seems as though at least your cash interest is not declining very much year over year. I was wondering if you could explain that and give some guidance on the P&L interest expense?

Again, I think maybe there's a little bit of conservatism in that number. I do think, again, we will see that go up a little bit at the end of the first quarter as we draw down inventory, and there's really no assumption made there as it relates to Venator. That is pre Venator, so there may be a little conservatism in that number.

Thank you.

Operator, we're just about at the top of the hour. Why don't we take one more question?

Certainly. Aleksey Yefremov at Nomura Instinet.

Thanks for the follow-up. I just wanted to check in on the status of your JV with Sinopec at Nanjing, I think you were looking at first half of 2017 commercial startup.

How is that trending? Do you see any EBITDA or cash flow contribution this year from that project?

That project is on schedule to start up the middle of this year. And all updates I've received would tell me that we are right on schedule.

Any thoughts on financial impact?

I would just say that as cash flow is generated there, they certainly have leverage on that business. Cash flow will be used in that business to reduce its indebtedness on its balance sheet. As far as dividends back, I would expect none this year.

Okay. Thanks a lot.

Thank you.

Dave, this is Kurt. We want to thank everybody for joining us on the call today. We look forward to engaging further with folks.

As we go through the first quarter here at various conferences and marketing events, and certainly to the extent that you have additional questions, feel free to reach out to us here at Huntsman. Thank you for your time.

Thank you for your participation in today's conference. This concludes the presentation.

You may now disconnect. Good day.