Huntsman Corp (HUN) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2017 Huntsman Corporation Earnings Conference Call. My name is Emma, and I will be your operator for today. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I'd now like to turn the call over to Ivan Marcuse, Vice President of Investor Relations. Please proceed, sir.

Thank you, Emma, and good morning, everyone. I am Ivan Marcuse, Huntsman Corporation's Vice President of Investor Relations. Welcome to Huntsman's Fourth Quarter 2017 Earnings Call. Joining us on the call today are Peter Huntsman, Chairman, President and CEO; and Sean Douglas, Executive Vice President and CFO. This morning, before the market opened, we released our earnings for the fourth quarter and full year 2017 via press release and posted to our website, huntsman.com. We also posted a set of slides on our website, which we will use on this 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 SEC 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 call -- during the quarter.

We also -- 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 we have -- which has been posted to our website at huntsman.com.

In our earnings release this morning, we reported fourth quarter 2017 revenue of $2.2 billion, adjusted EBITDA of $360 million and adjusted earnings of $0.76 per diluted share.

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

Ivan, thank you very much. Good morning, everyone. Thank you for taking the time to join us.

Let's go to Slide #3. Adjusted EBITDA for our Polyurethanes division for the fourth quarter was $294 million. Our MDI urethane business, which includes propylene oxide, polyols and system businesses, recorded adjusted EBITDA of $291 million. This compares with $130 million of the year ago and $254 million for the previous quarter. Our MDI delivered 12% volume growth year-over-year. Demand remains solid, and all of our MDI production units operated at full rates during the fourth quarter. MDI urethanes EBITDA margins remained strong globally as we continue to operate at full capacity.

Let's turn to Slide #4. We remain strategically focused on growing our downstream specialty and formulation businesses. We continue to shift more MDI from components to systems. In the fourth quarter, we saw a 17% year-over-year growth in volumes within our differentiated business. While our overall focus is to move as much tonnage downstream in our differentiated portfolio, we benefited this past quarter from a continued spike in our component MDI.

We said in our third quarter call that we believe we benefited by approximately $40 million of extra margin due to this temporary spike, largely in China and Europe. This continued into the fourth quarter with the industry facing shortages due to outages and geographical raw material constraints. We believe that the fourth quarter benefited by approximately $85 million due to these constraints. We believe that these one-off conditions will abate, and margins will revert to more normal levels in coming quarters. No one can accurately predict how this will play out. This will depend upon the absorption of the anticipated new industry capacity addition, including our own, the status of outages and the resolution of raw material supply in certain regions.

Even with all these capacities included, supply and demand dynamics remain tight. We expect that the industry will remain this way for the foreseeable future and believe that the growth that we have seen in our base business will be sustained moving forward. I reemphasize, however, that we are focused on what we can control, and we continue to move more of our business downstream. We estimate that approximately 75% of our MDI urethanes are in derivatives and formulations.

Looking at growth regionally, our North American volumes increased 16% as both commercial and residential construction markets drove demand in our composite wood products, adhesives and insulation sectors. Demand is robust in this region, and we expect to show a positive rate of year-on-year growth in MDI North America throughout 2018.

In our European region, MDI volumes increased 22% in the quarter as this region is benefiting from stronger demand, in addition to our recent 60,000 kiloton debottleneck at our Rotterdam facility that started to come online in the third quarter of this past year. We saw strong growth across all our key European markets, including excellent demand in our differentiated insulation system business.

India, the Middle East and Russia also saw double-digit growth in the quarter. As we start out in 2018, demand in Europe continues to be positive. Asia volumes declined as we logistically balanced our production geographically in anticipation of our new facility in China coming online.

Industry demand for MDI continues to grow at about 6% to 7% globally on an annual basis. As such, industry capacity needs to expand at about 400,000 kilotons annually. This is the equivalency of a world-scale facility per year. As we started -- as we stated this last quarter, we believe industry manufacturing capacity will grow at approximately 4% annually from 2016 to 2021. We believe we had good visibility over the next several years. Currently, we estimate that industry effective utilization rates are in excess of 95%. We would expect short-term rates to fluctuate a bit as capacity additions are absorbed, raw material constraints are resolved and recent outages come back into the market. But overall, we see continued favorable supply and demand dynamics into the foreseeable future.

Now moving into 2018, our outlook remains positive, despite our expectations for the short-term spike in margins to decline in our Asian and European markets. Our Chinese MDI expansion, which has begun its startup phase, will begin contributing to EBITDA in 2018. We will bring capacity into the market as demand requires. We expect MDI volume growth across our key regions and markets to continue into 2018. We will remain strategically focused on growing our downstream and differentiated MDI formulation.

Putting it all together, we anticipate modest EBITDA growth in our MDI urethane businesses in 2018 with year-over-year EBITDA growth being more in the first half of the year. Looking out to the first quarter of the year, we expect MDI demand to remain strong on a year-over-year basis. While too early to know for sure, I suspect the short-term spike in margins will soften a bit and that the first quarter will look more like the third quarter of last year. As we look beyond the first quarter, the remaining short-term spike in margins could soften a bit more as commodity component prices cool. But this is subject to various stated assumptions. Future operations problems may cause similar short-term spikes in pricing. To be clear, we see tight market conditions remaining for the foreseeable future. Notwithstanding the near-term volatility in Asia and European MDI commodity component prices, we believe average 2018 prices for the region will be similar to 2017 prices.

Lastly, for the quarter, MTBE reported $3 million in EBITDA, which is a modest improvement to the prior year period. We'd like to be more optimistic that this business will show improvement in 2018. And while we've seen a recent improvement in MTBE margins, we're currently taking a conservative view and expect MTBE in 2018 to look similar to 2017.

Let's turn to Slide #5 and discuss our Performance Products. This segment reported EBITDA of $47 million in the quarter. This past year was a tale of 2 halves for our Performance Products segment. Beginning in 2017, we communicated that this business was poised to recover off a disappointing 2016 result. We saw increased demand and improving industry dynamics in our key amines, surfactants and maleic anhydride businesses. As expected, our earnings did see a nice improvement in the first half of the year.

Heading into the second half of 2017, we continue to see an improvement in underlying trends in our key markets. However, as reported in the last quarter, these positive trends were overshadowed by the significant impact of Hurricane Harvey. Because of Hurricane Harvey, our planned multi-year ethylene oxide turnaround at our largest Performance Products site in Port Neches, Texas was delayed to the fourth quarter. We estimate the turnaround impact on the fourth quarter EBITDA to be $17 million. We also experienced weather-related and an unplanned outage that impacted us by an estimated additional $10 million. This largely affected our intermediates and surfactant businesses.

In spite of these difficulties, surfactant volumes were up 11% year-over-year, excluding our European surfactant business sold in December of 2016. Our amines volumes increased 9% year-over-year, and our maleic business saw a volume increase of 6% year-over-year. As we enter into 2018, the underlying recovery in fundamental in amines and surfactants remain, and the issues that impacted our second half of last year are now behind us. We expect first quarter results to be moderately better than last year's first quarter, which would be a significant improvement over our first quarter -- over our fourth quarter results. Our first quarter improvements are driven by our innovative pipeline that is delivering new sales in growth markets.

I'd like to flag that we have a planned maintenance turnaround in the second quarter of this year, which we estimate will impact EBITDA by about $15 million. For the full year, we expect Performance Products to deliver stronger EBITDA growth versus 2017, notwithstanding the impact of Hurricane Harvey.

Let's turn to Slide #6. Our Advanced Materials business reported EBITDA of $53 million. This business is focused on growing its core specialty businesses. And as specialty volumes increased 4% in the quarter, EBITDA margins remained steady at 25% in our specialty business and 21% overall. The volume improvement was across all of our specialty markets. In addition to steady growth in aerospace, we continue to see positive trends in automotive composites and adhesives, specialty coatings, DIY consumer adhesives. Wind and other commodity markets are currently adding nothing to our EBITDA and likely will remain challenged.

Let's turn to Slide #7. We remain focused on growing our specialty high-margin portfolio. This continues to be a great business with several positive mega trends. This business offers a good platform for future growth and development. We recently acquired Nanocomp Technologies, which is a small technology acquisition. The financial details of which we do not intend to disclose.

A key component of the Advanced Materials growth strategy is to add formulations and technology to our portfolio that allow us to expand in our existing markets and to access new markets. We can bring effects that our customers value and they're willing to pay for. The Nanocomp acquisition brings technology into assets to manufacture and develop carbon nanotube-based materials in various formats that can create a diverse range of valuable effects in composite materials and formulations, such as radiative heating, electrical conductivity, toughening and corrosion prevention used in end-use industries such as aerospace, automotive and electrical power. We believe that the integration of this technology within our Advanced Materials portfolio and potentially, other Huntsman business platforms will create additional commercial growth opportunities for us going forward. This acquisition primarily brings new technology that needs to be commercialized. As such, we estimate that over the next year, this business will not contribute additional EBITDA but rather add a modest expense while we integrate it and aggressively develop the optimal route to market. Looking at 2018, we expect Advanced Materials to see EBITDA growth in excess of GDP.

Let's turn to Slide #8. Our Textile Effects division reported EBITDA of $19 million, up 36% versus the prior year. This business is growing at above market growth rates as total volumes were up 4% in the quarter and 7% for the full year with key markets growing at 9%. This marks our seventh straight quarter of volume improvement. We believe that this volume growth should continue for the foreseeable future as our portfolio of products addresses our customers' growing need for sustainable solutions. The improved EBITDA in the quarter was driven by higher volume. In addition to sustainability trends, which continue to benefit this business because of our global geographic footprint, we are poised to take advantage of the trend of apparel retailers sourcing regionally for faster delivery times and shorter fashion cycles. We remain confident that EBITDA will approach over $100 million in the next few years with EBITDA margins reaching mid-teens. Looking towards 2018, we expect consistent EBITDA growth as well as margin improvement.

Before sharing some concluding thoughts, I'd like to turn a few minutes over to Sean Douglas, our Chief Financial Officer.

Thank you, Peter. Looking to Slide 9. Our adjusted EBITDA increased $360 million in the third quarter (sic) [fourth quarter] of 2017 compared to $204 million in the prior year period, pro forma for the sale of our European surfactants business and the separation of our Pigments and Additives business. The biggest driver for this year-over-year improvement in adjusted EBITDA was price, which was only partially offset by higher direct costs. While volumes were up in our core MDI specialty advanced materials maleic, amines and our textile effects businesses, overall volumes were down as they were impacted by lower volumes in our upstream and intermediate products, largely MTBE, ethylene oxide and ethylene glycol.

Compared to the prior quarter, our adjusted EBITDA increased to $360 million from an adjusted $340 million. The $20 million sequential improvement in adjusted EBITDA was largely driven by price and the impact of Hurricane Harvey on the third quarter. Volumes were lower largely due to expected seasonality in the fourth quarter.

Let's turn to Slide 10. We recently completed a successful follow-on offering of an additional 22% of our Venator shares, raising net proceeds of $513 million. We used these proceeds to pay in full $511 million of our term debt. We no longer have any secured term loans outstanding under our senior credit facilities.

During 2017, we repaid approximately $2.1 billion of debt with $1.7 billion of net proceeds from the separation of Venator and with approximately $400 million from our free cash flow. Our net debt leverage ratio as of year end stands at 1.4x, well within investment-grade credit metrics. This compares to our net debt leverage last year of 3.4x.

Our year-end liquidity stood at above $1.2 billion. We have transformed our balance sheet, and we enter 2018 with it being the strongest it has been in Huntsman's history.

2017 was another strong year for free cash flow. We generated $594 million, excluding Pigments and Additives, which are shown as discontinued operations, well ahead of our shared expectations of greater than $450 million. Our free cash flow conversion rate for 2017 was a healthy 47%. In the fourth quarter, we generated $190 million of free cash flow.

In 2017, we had a use of net working capital of $133 million in support of expanded business and higher prices. I will remind you that in 2016, we achieved a material step change in our inventory management. We continue to make improvements in our inventory metrics.

We spent approximately $280 million on net capital expenditures during 2017. As previously reported, during the second quarter of 2017, we benefited from a $90 million tax refund relating to prior year periods. Pension contributions were higher in 2017 as planned.

We have lifted our free cash flow target range for upcoming years, including 2018, by $50 million to between $450 million and $650 million. Looking into 2018, we expect to spend approximately $325 million on capital expenditures, in line with depreciation.

We expect to maintain good working capital metrics in 2018. I'll remind you that we typically see the first quarter of the year as a seasonal working capital build in comparison to the fourth quarter where we see a seasonal release of working capital.

We expect that cash interest will be approximately $110 million, nearly 1/2 of what it was in 2016. As we sit here today, we would expect pension contributions to be about the same to slightly higher and cash restructuring to be modestly less than in 2017. We do expect our cash spend in excess of amortization on maintenance and other to be higher in 2018 by more than $100 million, mostly due to the scheduled multi-year maintenance turnaround occurring in the second quarter on our Port Neches, Texas facility. In 2018, we will not repeat the benefit of $90 million tax refund like we did in 2017.

Now turning to taxes. In quarter 4 2017, our adjusted effective tax rate was 23%. Effective January 1, 2018, the U.S. tax reform act lowered the U.S. corporate tax rate from 35% to 21%. Given the proportion of our global earnings made in the United States, we estimate the favorable impact on the overall long-term effective tax rate to be approximately 4%. We continue to evaluate many of the complexities of a new tax code as are all multinationals. But based on the changes on the new tax code, we currently estimate our 2018 effective tax rate to be between 21% to 23%.

Speaking further regarding our long-term effective tax rate, we also have seen an increase in earnings globally. This increase in earnings in certain jurisdictions will allow us to access net operating losses previously deemed unusable by U.S. GAAP accounting. Consequently, we are assessing the release of a portion of tax valuation allowances later in 2018 related to Switzerland and to the U.K. In other words, later this year, we expect to be bringing back on balance sheet certain NOLs previously deemed unusable according to U.S. GAAP. While this required accounting treatment will not impact cash taxes in any way, it will have an impact on our overall effective tax rate by a few percentage points. Assuming these valuation adjustments are made later this year, our estimated long-term effective tax post-2018 will be between 23% and 25%.

Consistent with our U.S.-based global -- with other U.S.-based global companies, within the fourth quarter, we have recorded a few provisional tax adjustments relating to the new tax reform act. In the fourth quarter, we have recorded a provisional onetime noncash benefit of approximately $137 million due to a remeasurement of net deferred tax liabilities at a lower new tax rate. In addition, in the fourth quarter, we have recorded a partially offsetting onetime provisional tax expense of $85 million due to transition tax on deemed repatriation of deferred foreign income. This will be paid over 8 years. Approximately $73 million of this $85 million transition tax is directly related to the gain on the separation of Venator.

Now with respect to Venator. We presently hold approximately 53% of Venator common stock. We intend to continue an orderly sell-down of these shares subject to market conditions. At today's market price, this equates to approximately $1.2 billion of gross value. At recent market prices, we estimate the total tax on the total Venator monetization to be between $170 million and $200 million. Of this, we have incurred approximately $35 million in the fourth quarter of 2017. Approximately 1/2 of the remaining Venator taxes will be spread over 8 years as part of the transition taxes under the new tax code.

I would like to remind you that we show Venator as held for sale on our balance sheet and in discontinued operations on the income statement. The minority interest of $532 million relating to Venator on our balance sheet will be removed once our ownership in Venator falls below 50%.

In summary, we have achieved investment-grade credit metrics. Our balance sheet has never been stronger. We have consistent free cash flow. The effect of the new U.S. tax code is a modest positive. As we move forward, we are focused on a sensible use of our capital.

I will now turn the time back over to Peter for concluding comments.

Thank you, Sean. Let's turn to Slides 11 and 12. We closed out 2017 with a strong EBITDA of $1,260,000,000 and a strong cash generation from both our operations as well as partially monetizing our ownership of Venator equity. At this time, as we look out to 2018, we see our 4 divisions each earning more than they did in 2017. In 2017, cash flow generation was about $600 million. I believe that next year, we should be in the range of $450 million to $650 million.

As Sean reported, our [debt-to-EBITDA] (corrected by company after the call) ratio is now at 1.4x. We will continue to prioritize and maintain a strong balance sheet that will allow us to focus on 4 priorities. Number one, we'll continue to invest in our organic growth as we improve our reliability and bring new capacity in products into the marketplace.

Number two, we'll seek out acquisitions that will allow us to expand our downstream margins, deliver consistent earnings and grow the business at stronger than GDP rates. These acquisitions will be focused primarily on our downstream MDI, epoxy, amines and surfactant businesses. In pursuing these acquisition opportunities, we will maintain -- we will remain committed to maintaining long-term investment-grade metrics.

Three, returning cash to shareholders. Our board recently approved a 30% increase in our dividends to shareholders. We think this brings us in line with our industry peers and again, preserves our strong balance sheet and credit profile. Our Board of Directors also authorized the repurchase of up to $450 million in stock. This will be done at a value and at a pace of our choosing but will not jeopardize our balance sheet.

Four, as opportunities avail themselves, we'll continue to monetize our equity in Venator. Subject to market conditions, I hope we can complete this, this year.

On the 23rd of May, we will be hosting on Investor Day wherein each of our divisional presidents will join me in presenting our view of the business going forward as well as more details of the objectives I've just set out.

On a personal note, earlier this month, my father passed away. He'll be surely missed by his family of over 15,000 associates in Huntsman Corporation and Venator. I speak on behalf of all of our associates in recognizing his vision, his faith in humanity and deep love for this industry. As I've said in an earlier release, dad didn't know much about molecular chemistry, but I know a few people who come close to his knowledge of human chemistry. We lost a great one.

2017 was a great year in spite of historic storm impacting our earnings. 2018 looks even better.

With that, operator, will you explain the procedure for Q&A? And let's open the line up for questions.

(Operator Instructions) So your first question comes from the line of Frank Mitsch from Wells Fargo.

My condolences to you and your family, and I totally agree, we did lose a great one.

Thank you very much, Frank.

Peter, you mentioned your view -- or your vision on doing some M&A or looking at M&A. How are you looking at multiples right now? And I mean, because we've heard from other people that multiples tend to be on the high side. And so from your perspective, how likely is it that Huntsman will pursue some M&A in 2018?

Oh, I think that we are looking at a number of projects before us right now. I would characterize these, Frank, more as bolt-on acquisitions. Now that obviously can change, depending on what's out there and what comes available. But I would -- I think it'd be very difficult for us to find and justify an acquisition that did not have some element of integration to it. I think that when we look at some of these double-digit multiples that are being paid, particularly by some strategies that's really -- particularly by private equity, I just -- I think we've worked too hard to get our balance sheet where it is. And I think that in the past, I think we've been very successful in buying and integrating smaller bolt-on acquisitions. I think with a stronger balance sheet and I will expand the target, we'll expand what would be -- the size of those targets, but I think that we need to continue to be very balanced in that approach.

Right. That's very helpful. And if I could ask a question on the businesses, very impressive amines and maleic anhydride volume growth in the quarter. Where are your operating rates? How much more can we see happen in those businesses?

At our maleic businesses, I'd say that we're operating in the low 90s, low to mid-90s. Amines, we've got more capacity there. And I think that as we look throughout the year in our amines businesses, we do have room to not only grow that volume metrically but also to upgrade that business. And I think that where we've been over the last couple of years, as I look at our businesses today and throughout 2018 in our Performance Products, I kind of look at it's the big 3, if you will, of between amines, surfactants and maleic. I think that the opportunity for best growth there is going to be in the amines area.

So next question comes from the line of Kevin McCarthy of Vertical Research.

I appreciate the detail you've included on Slide 4 regarding MDI. Peter, I was wondering if you could comment on how much price you've been able to achieve in MDI systems specifically. And to the extent that you have been able to raise price there, what is your degree of confidence that you can hang on to that when and if component MDI prices regress?

Well, I think that Slide #4, we've put a lot of thought into this one. As to what is really reflected here is what we would consider to be our base EBITDA business. What we would say would be that the tightening, when we talk about the tight market conditions on Slide #4, I would say that those are price increases that we've been able to achieve really through 2 means. One, of targeting higher-end value-added applications and customers and also because the industry is operating in the low 90 percentile utilization. I think that we've also tried to be very clear into how much we think this is -- how much of this is kind of the commoditized components. And I want to be clear here, I don't look at all components as being commodity, but there certainly is a majority of the component businesses out that I would characterize as more commodity than not. How much of that is really what I would consider to be the short-term spike. And so you look at the third quarter, looking into the fourth quarter, kind of a $40 million benefit in the fourth quarter, $85 million benefit in the fourth quarter. The -- what we show on the red bars on Slide #4, I expect that we will keep that on a longer-term basis quarter in, quarter out, may not be exactly flat. Again, there are variables about operating conditions and how much people bring into the market and starting up a facilities that are now shut down. But I would expect us to certainly maintain and keep the majority of that red section.

And then as a follow-up. If I focus on that gray bar of $85 million in the fourth quarter, is all of that component MDI? Or do you have anything else in there?

Yes. I would think that 95-plus percent of that. I don't want to categorially say 100% of it. Certainly, the vast majority of that would be component MDI and would be MDI business that I would assume that -- I mean it's safe to assume that I look at that as being kind of more spot-oriented business or businesses where you would have an end-use application where competitors can take the business come just over pricing. And of course, that's the business longer term that we want to be kind of slowly pulling away from and being able to have either a formulation or a downstream systems or a longer-term contract or a longer-term price type of a contract, but that's why that business is largely Asian-centric at this time.

Next question is from the line of Hassan Ahmed of Alembic Global.

Deepest condolences about your dad, definitely lost an amazing gentleman.

Well, thank you, Hassan. I know he saw the world with you and enjoyed his relationship with you over the years as well.

Always. Always love this company. Peter, a question about the sustainability of MDI margins. Obviously, we've seen some outages in the industry, some incremental capacity coming online. But as I sort of reflect on 2017, particularly in the Middle East and Saudi Arabia, we saw incremental MDI supply come online. And it seems it was very, very quickly digested by the market, and pricing actually didn't even negatively react to that, which, to me, suggests that demand continues to be very strong. Now you talked about maybe some hiccups along the way in 2018 because of sort of incremental supply, some of the facilities that have underwent outages then coming back. But is it possible that we see a repeat of 2017 in 2018 again just because of, call it, above-trend MDI demand?

Well, I would -- certainly, if you see major outages in the industry, what we don't know is the -- how much capacity is truly coming out of the Middle East. It would appear, just by reading public information, that the new Middle East capacity is running probably in excess of 80% capacity. That's a lot of new volume that's come into the market, and I'm not prepared to say that we haven't seen any impact of that coming into the market. But I think as you kind of think about how much capacity has been taken off during the fourth quarter, how much has been added on during the fourth quarter, I think that there's probably a fairly close balancing act here. And I think over the course, if I was the -- to just express candidly, an uncertainty over the first quarter is that $80 million, $85 million we show on Slide #4, I said earlier in my comments that we think that, that softens. The question is to what degree that softens and how soon that softens. And that's going to be, in effect, as to how much capacity comes into the market, the startups that will be coming into the market and how that overall impacts the market. But I think you hit on a good point there, Hassan, that throughout 2018, MDI plants, as you go back over the last 4, 5 years, it's not unusual that at any given point, you have a world-scale facility that is down. And the scale that we're seeing built today, these facilities of around 400,000 tons facilities, you all of a sudden see a market go from 91% to 96%, 97% capacity utilization almost overnight. And that will affect prices, and I think that, that -- I'm not going to say that's -- that could well be the new norm. But as I look out over the last couple of years, it seems as though that there is kind of, on average, a world-scale facility that's either going down, coming up or shut down for some unplanned problem, so.

Understood, understood. Now changing gears a bit, on the raw materials side of things, how are you guys thinking about 2018 from a raw material sort of cost inflation perspective? I mean, obviously, we've seen some spikes in methanol pricing. Ethane continues to be sort of relatively oversupplied, relatively cheap. Benzene, it seems hasn't really played catch-up with crude oil. So how are you guys thinking about raw material cost inflation, or lack thereof, in '18 relative to '17?

I think that -- I mean, a lot of that is going to depend on the crude market. I think that the crude market is probably, in my opinion, and I'm certainly not an expert in the field, but my opinion, I think, that crude's probably been overheated right now when you look at how much new capacity is coming into the market of crude production, fracking and so forth. And I think that when you look at the derivatives of benzene and the number of other products that are kind of the crude oil derivative, not really reflecting a full [some] price in the mid-60s. I would tell -- it just kind of would tell me just anecdotally that the crude and the derivative market probably don't believe that these are sustainable crude prices either. So as I look out into 2018, I'm not sure that -- we're not expecting a big fly up in benzene and a number of our raw materials. I think we'll see the average -- the typical cyclicality, the typical arbitrage that remains between an oversupplied Asia and an undersupplied North America. We'll see price move into those areas. But I don't see something that materially would impact the business.

Next question comes from the line of Jeff Zekauskas of JPMorgan.

What was your cash flow from operations for 2017 inclusive of discontinued operations?

Give me a second here. So the discontinued operations piece in 2017 would be $377 million.

$377 million, okay. I know your taxes are quite complicated. But if you could exclude Venator for a moment or the monetization of Venator, what was your cash tax rate in 2017? And what do you think your cash tax rate will be in 2018?

So we believe going forward here, Jeff, that, that rate will be approximately 20% to 22%. And in 2017, it was probably a little bit lighter than that.

Just a little bit lighter than that. So your cash taxes are actually going up a little bit?

View is yes.

Yes. And lastly, are there any areas where you need new capacity? And how much would it cost to get that capacity?

Yes. I'm just not a big fan of new organic capacity. I mean, I'm just seeing across the board, I mean, we've obviously got MDI coming on in China, and that's going to be -- I think it will be over the next 12 to 18 months that we absorb that. And we'll be absorbing it as the grades and as the market -- as the grades are able to be produced and as the market's able to absorb it. But as I think about the other facilities, I mean, it's -- I think we've got some room for some minor debottlenecks in our maleic business. And our surfactants and amines, I think, we've got some excess capacity in our Textile Effects. In our Advanced Materials, as you know, from these couple of years, we've been freeing up capacity, I'd say, on the commodity side of the business. I think we've got plenty of excess capacity to supply the aerospace industry. We actually -- the last time we expanded our Advanced Materials businesses, I think that we expanded going out to about 2025 as far as what we were expecting the demand to be from the aerospace industry on the 777, 787 and 350 platforms, 380 platforms. So as I look across the board, I think that I don't really see a need to go out and be spending money to build new grassroots facilities. Again, I think that I'd like to see some capacity creep coming along at GDP sort of rates. And -- but I just don't see a need to go out and build a lot of new capacity here.

Okay, so next question comes from the line of Michael Sison of KeyBanc.

Peter, I thought you mentioned that you felt each of the segments could grow EBITDA this year and -- in 2018 versus '17. And given how strong you had the short-term spikes of margins for MDI, can you maybe frame up the type of growth you could do in Polyurethanes in '18 versus '17?

Yes. I think that when we look at our base EBITDA and that red line again, going back to that Slide 4, I think that we're going to see that being maintained and expand throughout the year. And I think as we look at the what I would consider to be our short-term spike, we'll see kind of a reversal in the early part of the year with a benefit of that spike in the early part of the year. And the second half of the year, we'd see our earnings mostly in -- on what I'd consider to be our base EBITDA and our growing EBITDA, which would be that red section. So I think when you average out to 2 years, you're going to see a pretty similar pricing. But throughout the year, I'd say that you'll also see an additional line building up throughout 2018 on Slide 4, which is the Chinese capacity. As that comes into the market, it will expand. As you saw -- as we saw this last quarter, year-over-year at 16% growth overall in the Americas, now that's a lot of product. It used to be going to Asia that's coming back into the Americas. There's a very strong demand right now in North America. We've been able to place a lot of new tons and to expand with our customers in that area. So I think that we're going to see some repositioning where MDI that used to go from North America to China will stay onshore. Europe will stay onshore. And China and Greater Asia, not just China, but the whole Greater Asia market, will be supplied as we take on another 200,000 tons of capacity over the next year or so.

Okay, great. And then I was impressed with the other bar chart, which shows 16% and 17% growth in the high-value differentiated business. Can you maybe walk us through what -- where that growth is coming from? And is that a similar type of growth that we could see in the next couple of quarters into '18?

Well, I think that a lot of that as we look -- the year-over-year sort of a growth taking place, the CWP, the composite wood construction markets continue to be strong for us. We continue to see strong growth in automotive both in Europe and in Asia, rather flat in the Americas, but Europe and Asia, most parts of the world. Our ACE businesses, particularly in Europe, continued to do very well. That's the adhesives and coatings and elastomers businesses. And then our insulation business, we continue to see strong growth in Europe and in the Americas, certainly stronger than GDP growth in the Americas, double-digit growth in Europe. So as I -- that's why I say it looks really broad based as I look across the board and I look in areas like construction and the insulation markets. We've made very little penetration relative to the size of those industries as I look in the composite wood, as I look at lot of the automotive applications and so forth. There really is polyurethanes and MDI in particular, as we look at these downstream segments, MDI is a great chemistry to be able to build on, and we'll take that chemistry to move it aggressively downstream. That certainly is going to be 1 of our larger focuses here.

Next question is from the line of Laurence Alexander of Jefferies.

It's Dan Rizzo, on for Laurence. Could you guys tell me -- did you guys go over your turnaround schedules from 2018 and 2019, what you're expecting?

Why -- we have not for 2019. But as we look in 2018, the guidance that we gave was in the second quarter, that would be at our Port Neches facility in Texas. You should expect about a $15 million cost on that, and that should all be contained within that quarter.

And that's the only thing?

That's the only thing and as we look throughout 2018, yes. That's -- that would be what I consider to be the only material turnaround that we have.

Okay. And then, have you talked about potential cash repatriation that you have to do, that you're thinking about doing just with the new tax code?

No. What happens there is that we have a deemed repatriation tax right upfront. And that was something I mentioned earlier that we basically take an expense today onetime of $85 million. 75 -- 3 -- $73 million of that's related to Venator. So that's something we take upfront. So the good news there is that as we bring cash back over time, if you will, that's been already taken into consideration in terms of P&L. And in terms of bringing cash back, that's a -- we will have some elements of local taxes that we'll pay cash taxes on. For example, if we repatriate from China or India, things like that, there'll be some local taxes paid there. But the U.S. tax is pretty much taken care of on a book basis by taking this upfront tax hit.

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

Peter, I appreciate the candor on the segments and MDI and some of this potential over earnings in the short run. I'm trying to calibrate that a little better, so we can figure out what might happen 3, 6, 12 months out. Can you give me a sense -- I think you, in the past, talked about the component business having a normalized or typical EBITDA margin of 10%. Give us a sense of where that might be today.

Yes. As we look at that today, it's probably -- again, depending on the region and depending on the application, you're probably looking in some of these as being in excess of 20%. But again, I -- sometimes we have -- we look at components as being kind of this monolithic product that sells kind of all commodity or not commodity in all one price, not one price. So I think, again, as I look at it as more as to where do you have customers down -- where do you have MDI customers? Well, those customers are vulnerable, and they're just price buyers. No, I'm not going to say all of them are price buyers. But what do you have? A more commoditized component business. So today, I would say that, that's around 20% on average, and that's -- I'd say that typically, yes, we've said in the past, it's around 10% normally. And I'd say that's -- those are pounds that eventually we'd like to be moving further downstream into formulation applications.

And on MDI, it seems like Covestro and some others have talked about how it takes quite a while to get these facilities ramped up. Can you give us some sense on your own plant in China, that expansion there, what your cadence of introduction? You mentioned obviously you do it diligently into the market. But if things stayed as good as they are, how quickly could you bring and ramp that capacity up?

Well, I think, typically, when we look at ramping up a facility, assuming you don't have mechanical issues, I mean, I look at our own experience with our own technology and our own MDI plant that today, I'm obviously biased in saying this. I think our plant in Caojing today is one of the most reliable, finest MDI facilities operating in the world. But it took us over a year to start that facility up. There were some mechanical issues and some -- it was a 14-month process. Now I -- and when I look at the Caojing 2, the present facility, we do have product coming out of that. It is going to customers today, and -- but we are going through a gradual startup process, making sure that as you go through these things, you're not going to be damaging the equipment, and that you're -- they're going to be able to produce a nonspec product. So I would think that typically, a 6-month to 9-month sort of a process, thinking that we -- our clock kind of started at the 1st of the year, and I think that's 6 to 9 months out. If, for some reason, you could sell the plant out, you're not going to do it in the next 6 months.

Okay, next question comes from the line of Aleksey Yefremov of Instinet.

This is Matt Skowronski, on for Aleksey. Just following up with the ramp of MDI. How quickly do you think debottleneck in Europe can be filled?

It's filled right now, and it's filled out right now. And then that's why in Europe, we're looking at a 22% year-over-year. That's not just because market is necessarily strong. We're -- markets are better than they were a year ago. We've also got more capacity.

Got it. And with the buyback announced this morning, is there any stipulation on the timing? And would the board be able to kind of up that amount once Venator has been monetized?

Well, I think that the board will always be open to ideas and suggestions. I think we've got a board that's very focused on a strong balance sheet and will remain so. I think, though, that as we look at that, typically, in our industry, I think -- and I -- again, I don't want to say that this is exactly what we're doing. Typically in our industry, buying in about 2% of your equity value, 100 for us, that'd be, what, something round $150 million a year. A portion of that is going to be kind of on your -- on a quarterly basis looking at your weighted average price per share. And then the other part's probably going to be you're going to be buying a little bit more per quarter at hopefully, a lower price and at a higher price. I know that all sounds rather nebulous, but I think that we'd be looking at some element of that, that's going to kind of be a programmed purchase, and another element of that is going to be somewhat on a, I wouldn't say speculative purchase, but perhaps opportunistic purchase. But I think when we look at that $450 million, I would expect that to be spread out over a multi-year period.

Okay, next question comes from the line of P.J. Juvekar from Citi.

This is Eric Petrie, on for P.J. Could you remind us the EBITDA benefit from Rotterdam and China MDI expansion? And then, Peter, you noted that U.S. MDI volumes to China are expected to decline. Could you give any quantification of the $125 million benefit that trade arbitrage played into?

Yes. I'm a bit lost as much as the trade arbitrage played into the $125 million benefit. What...

Yes. Did you realize any benefit from shipping from U.S. and Europe to China? And did that contribute to the $125 million?

No. I think no, I wouldn't say that there's any arbitrage to be played on that. That should kind of just be considered flat. We haven't -- really, I don't think that we necessarily look at how much EBITDA is generated by an expansion per se. If all of those pounds were being sold at the same price, same margin, I think that, that would be apropos. But we produced a lot of that MDI, but then some of it's sold directly as pure MDI, some of it goes into component, some of it goes into formulation. And I think that we kind of look at that as just being part of a rising tide rather than a specific number that we've broken out on the P&L. So I guess a crafty way of saying I don't know.

Okay. So you aren't pulling out commodity grade and reducing differentiated to take advantage of the short-term opportunity?

No, no. I mean, if anything, we've got excess splitting capacity with an expansion we did earlier last year. And this has allowed us to have more tons to be able to take in and actually address some of the more specialty side.

Okay, helpful. And as a follow-up on epoxy, could you give any update on your outlook for utilization rates in 2018 versus last year and pricing trends versus raw material inflation?

I used to be -- we used to follow capacity utilization when we were producing more BLR, more commoditized grades of epoxies. To be honest, I don't even follow those anymore. I -- we've shut down so much of our basic capacity in our BLR business, and most of what we have remaining is all captive. And as I said earlier, I -- we've got units that are selling -- products that are selling at 20%, 25% margins where the units are operating at 30% capacity. So I'd like to think that we've got products out there that are not capacity impacted but rather are valued on formulation and molecular composition rather than how much capacity is out there.

Next question is from the line of James Sheehan of SunTrust.

Peter, thanks for your updated thoughts on M&A. In the context of your desire to have an investment-grade rating, is it fair to say that large-scale M&A is pretty much off the table?

Well, I would never say never. I am my father's son. So as you look at that, I think that a lot of it is opportunity-based. If we saw another deal that looked like the recent merger that, I think, over the long term would have added a great deal of value, I look at acquisitions that have truly transformed this company like the Texaco chemical, the Ciba epoxy business, the ICI business, yes, but I think those come along every -- once a decade sort of a thing. I think that, by and large, though, that we're looking at maintaining a strong balance sheet. And I think that as our equity value improves, we want to be able look at that as a currency, look at new debt as a currency. And so -- and I'd also just note that when I think of maintaining a long-term balance sheet, typically, if you have an acquisition and you have a rate -- or excuse me, if you have a route or a means to kind of return within a year or 2 or so back to what I would consider to be investment-grade matrix, I don't think that, that necessarily kills anything. But we want to maintain that, but look, that's not going to run our long-term strategy either. We're in here to create value and to create shareholder value.

What's your thinking on the timing of an investment-grade rating?

Well, I think that we're -- we've been an investment-grade company for some months now. That's not up to me. I think that we're already there, and I see no reason why we wouldn't be an investment-grade company. But again, that's not my decision.

And how did the cold weather impact your businesses on the U.S. Gulf Coast in January? Or any impacts that we should know about for first quarter?

No. Nothing that we've seen. Maybe a few million here or there as capacities were idled, but we didn't see any long-term closures or damage that was done.

Next question is from the line of Matthew Blair of Tudor, Pickering, Holt.

Peter, I was intrigued by your comment that you're looking at M&A in amines. When we think of Huntsman and amines, we think of very strong market share already. So I guess could you talk about what would be your strategy here? Is it simply to get bigger in the space? Or are you looking to upgrade your existing production? Any comments there would be helpful.

I think both, but largely to upgrade. I'd like to see us go further downstream. I think that as we look in some of the fast-growing areas around agricultural chemicals, around the oil field services and so forth. I think when I talk about amines, it's not just adding more amines capacity but more amines capability downstream consumption. I'd like to take our molecules, our EO molecules, PO that are going into amines and move those further downstream. So I'd say that there is a little bit of opportunity that we see to widen and expand the capacity. But mostly, I'd like to focus on downstream integration and using those molecules further downstream.

Got it. And then on MDI, so in 2017, there were a lot of unplanned outages that really grabbed a lot of headlines, but there's also a fair amount of planned activity. Do you have the sense, industry-wide, what planned MDI turnarounds look like in 2018 compared to 2017?

No. I'd say that on -- MDI facilities typically go down once a year, when you look at the maintenance and so forth. It's not very often that you find an MDI plant that goes 4 years without any closures. And so I think that what you've seen in the past as far as planned outages, I would imagine that's probably going to continue. That's -- we've seen a pretty consistent operating rate over the last couple of years that way.

Because -- we'll take 1 or 2 more questions. We usually try to end at the top of the hour. But since we went on so long about taxes, we'll take another question or 2, and then wrap it up here.

Okay, and you have another question from the line of John Roberts of UBS.

Sorry about your father as well, Peter.

John, thank you very much.

And I'll ask just one question. If you could have all of your component MDI business used internally in systems, would you go that far? Or do you structurally kind of always want to have a presence or intelligence about what's going on in the component market?

Oh, I think that our objective -- and it's that -- I want to be clear here, it's not that components are good or bad. I mean, if we could structure components, and we have these today particularly in North America around our OSB businesses, where you've got long-term contracts with price escalators or deescalators, and that's why you've heard me say that we look at volatility of component pricing in Asia and Europe. I've not mentioned anything about components in North America. Much of our component sales in North America are larger-volume, longer-term businesses where we've given up, perhaps, some of that upside margin to make sure that we've got long-term, consistent earnings. And so I wouldn't say that we want all of our -- and those large-volume accounts help baseload facilities. And frankly, it's just good business. So I wouldn't want to say that we see a day when we'll be completely out of the components market. I would hope that we can see a day where we have taken what I would consider to be the commoditized end of that component business, and we've upgraded that either to higher value-added component, longer-term stable contracts, or we've somehow derivatized that by formulating it, putting it to a system house or blending it with something else of value.

And I think, operator, that pretty much takes up our time here.

So thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.