Kronos Worldwide, Inc. (KRO) 2011 Q2 法說會逐字稿

Welcome to Kronos Worldwide second-quarter 2011 earnings call. My name is Jasmine and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

I will now turn the call over to your host, Janet Keckeisen, Vice President of Investor Relations for Kronos Worldwide. You may begin, Janet.

Thanks, Jasmine. Good morning and welcome to the Kronos Worldwide 2011 second-quarter earnings call.

With me this morning are Steve Watson, Chief Executive Officer, and Greg Swalwell, Chief Financial Officer.

The earnings release that was issued this morning can be found on our website at KronosWW.com. During the course of this conference call, we will make forward-looking statements. All statements relating to matters that are not historical facts are forward-looking statements that represent management's beliefs and assumptions based on currently-available information.

Although the Company believes that expectations reflected in such forward-looking statements are reasonable, it cannot give any assurance that these expectations will prove to be correct. Such statements by their nature involve substantial risks and uncertainties that could significantly impact expected results, and actual future results could differ materially from those described in such forward-looking statements.

We assume no obligation to update or revise any forward-looking statements. Please refer to the earnings release for a discussion of some of the factors that could cause the actual results to differ materially.

In an effort to provide investors with additional information regarding the Company's results of operations, we will refer to certain non-GAAP information. We ask that you refer to the earnings release for a reconciliation of this non-GAAP information to our GAAP financial statements.

I will now turn the call over to Steve.

Thank you, Janet, and welcome to everyone participating on this conference call.

In addition to Janet, with me today are several members of our management team -- Greg Swalwell, Executive Vice President and Chief Financial Officer; Rob Graham, Executive Vice President; Kelly Luttmer, Vice President and Global Tax Director; John St. Wrba, Vice President and Treasurer; Tim Hafer, Vice President and Controller; and Brian Christian, Vice President, Strategic Business Development.

Rest assured, we do have people running the business while we chat with all the folks that called in today. On that point, I want to give special recognition to our exceptional operating management team. The leaders of that team, Doug Weaver, Dr. Ulfert Fiand, Klemens Schluter, and Joe Maas led our business through the adversity faced by the Ti02 industry and global economy in 2008 and 2009, and positioned us to be able to quickly adapt to industry changes.

Through the years, these leaders have also developed and managed a deep and talented group of managers and technical professionals, who will serve our business very well far into the future.

During the first and second quarters of 2011, we continued to experience strong global customer demand for TiO2 products. This allowed us to successfully implement further significant selling price increases. Our TiO2 segment profit in the first half of 2011 nearly quadrupled from the first half of 2010.

We believe the global shortage will continue for several years, due to the constraints to adding significant new production capacity, especially for TiO2 premium grades produced through the chloride process.

Major capacity additions, both brownfield and greenfield, require considerable investments of capital and time. It generally takes two to five years from the time of announced capacity expansion until the additional facilities are fully operational.

As we have discussed previously, the mere announcement of capacity expansion, such as those occurring in the last few months, will do little to relieve the longer-term shortage of TiO2 products. We believe that higher long-term, sustainable profitability levels will be needed to induce TiO2 producers to commit the capital and time needed for capacity expansion of the magnitude required to match future growing demand levels.

The increasing raw materials costs, and in particular the global shortage of ore feedstocks, is also an impediment to capacity expansion. We anticipate the tightness in ore feedstock supplies will last at least for a couple more years.

As we have previously discussed, an extended period of low profit margins did not foster the investment in and development of ore supplies that are now needed for an expanding TiO2 industry. The TiO2 industry cannot grow without the expansion of ore supplies, and the ore industry needs the TiO2 industry to grow in order to justify its own expansion.

We believe both sides of these relationships understand this co-dependency, and that increasing costs of ore will remain in check so not to become a major factor in hindering profit-margin expansion in the TiO2 industry, which could in turn hinder TiO2 capacity expansion.

Although the ore supply situation is tight, we believe our longstanding relationships with our key suppliers will allow us to have an assured supply of feedstock while the supply shortage continues. We do, however, believe our feedstock costs will increase significantly in 2012.

We are partially hedged against these cost increases due to our backward integration. We supply 100% of our European sulfate production ore feedstocks from our mines in Norway.

Most TiO2 customers' number-one concern has turned from price to assured -- assurance of supply. We view our customers as partners and greatly value our long-term relationships. We make every effort to satisfy our customers' most critical needs, even though allocations of limited TiO2 product supplies are expected to continue. We understand the increased burden our customers are experiencing and try to work with them to minimize disruptions to their business.

I will conclude my prepared remarks with an observation that I believe deserves repeating for our new stockholders. Our style of management is from an owner's perspective. I can say that authoritatively because I'm also the CEO of the company that holds 80% of the stock of Kronos.

Our focus is to provide the highest total return to our stockholders through appreciation of the value of our stock and dividend distributions, while maintaining strong financial liquidity and strategic positions. Our perspective is a long-term view. We do not play the quarter-to-quarter earnings game that many non-owner-managed companies often play.

I can report to the stockholders and those professionals who follow our Company that the outlook for our business remains outstanding. We believe the current and anticipated TiO2 industry conditions will result in higher profit margins and cash flow for several years.

Greg will now review our overall financial performance, after which we will open this call up for questions.

Thank you, Steve, and good morning to everyone on the call.

We achieved record operating results in the second quarter and first six months of the year, primarily due to the favorable impact of higher average selling prices for TiO2.

We reported operating income, or segment profit, which is the term we use in our earnings release, of $146.6 million in the second quarter, compared to $41.4 million in the second quarter of last year. For the first half of 2011, we achieved segment profit of $250.8 million, compared to $64.3 million last year.

Our average TiO2 selling prices in the second quarter were up 39% as compared to the second quarter of last year, and our prices at the end of the second quarter were about 10% higher than at the end of the first quarter of this year. For the first six months of the year, our selling prices were up 36%.

As a result of the global shortage of TiO2, we anticipate our selling prices will continue to increase significantly during the remainder of the year.

As Steve mentioned, we continue to operate our plants at near-full practical capacity utilization levels, and our production volumes for the second quarter were up 6% from the second quarter of last year, with year-to-date volumes up 7%.

Our sales volumes for the first half of 2011 were up slightly compared to first half of last year, and second-quarter volumes were down slightly due to the timing of shipments to our customers. Both our year-to-date sales and our year-to-date production volumes were new records for us.

As we previously have said, our ability to achieve additional increases in our production capacity through debottlenecking projects is limited, and our current expectation is that global demand will remain strong in 2011 and that we expect our sales and production volumes overall in 2011 will increase slightly from the 2010 levels.

On the cost side, and as we expected, our raw material costs were up $18.1 million in the quarter, $30.5 million on a year-to-date basis. These higher raw material costs reflect primarily higher feedstock and petroleum coke.

Our maintenance costs were also up slightly, consistent with our higher production levels.

Overall, we currently expect that our per-unit metric ton cost of TiO2 will increase between 10% and 15% for all of 2011, as compared to all 2010, which is consistent with our cost expectations at the end of the first quarter of this year.

EBITDA for the quarter was $158 million, up from about $50 million in the second quarter of last year. Year to date, EBITDA was about $274 million, compared to $83 million last year.

Our interest expense for the quarter and year to date were lower, primarily due to the redemption of EUR80 million of our senior secured notes that we completed in March and the favorable interest rate on borrowings under our revolver.

Our net income for the second quarter was $89 million, or $0.77 per diluted share. This compares to $19.3 million, or $0.20 per diluted share in the second quarter of last year.

For the first half of the year, our net income was $149.3 million, or $1.29 per diluted share. This compares to $62.1 million, or $0.63 per diluted share in the first half of last year. And as a reminder, our year-to-date results in the first half of 2010 include the impact of the previously reported first-quarter non-cash income tax benefit of $35.2 million, which is $0.36 per diluted share, related to a favorable development for some tax matters in Germany.

In May of this year, we implemented a two-for-one stock split, and all of the per-share amounts that I've referenced this morning are computed on a post-split basis, including per-share amounts from 2010.

For the remainder of 2011, we expect that our segment profit and net income will be significantly higher as compared to 2010, as the favorable effect of higher selling prices will more than offset the impact of higher anticipated production costs.

This concludes our prepared remarks, and at this point, we will open up the call for questions.

(Operator Instructions). David Begleiter.

Hi, this is James Sheehan in for David this morning. Could you talk a little bit about SG&A? I noticed it was higher than last quarter by about $6 million. Just what was behind that? And could you also give us, what is your outlook for SG&A in the second half?

Included in our SG&A costs is our distribution costs. So, to the extent we have higher sales volumes, second quarter versus first quarter, you're going to see an increase in SG&A because that is where we report our distribution costs.

Much less significant, but somewhat also of an impact, is we have a little bit higher R&D costs as compared to last year. If you look at our 10-K on a historical basis, 2009, 2010, we were running R&D on an annual basis of around $12 million to $13 million a year. And we reported in our 10-K last year that our expectations for full-year 2011 R&D costs were going to be slightly higher, around the $20 million range. So, a little bit of timing of R&D efforts in the quarter would also be an impact for that as well.

Okay, that is very helpful. And just also on TiO2 selling prices, I see one of your competitors has just raised prices in North America by $0.10 a pound for August 15 implementation. Do you expect Kronos and other producers to have roughly equivalent price increases in that timeframe?

We obviously can't speak for what any of our other competitors might do in terms of price increase announcements or implementations.

And with respect to our own decisions about price increase, those are decisions that we make on an ongoing basis, considering all factors and market conditions, our expectations for production costs, and things like that. We don't give any guidance in terms of when we might be making an announcement of a price increase or what the magnitude or implementation dates of those would be, so I really can't respond to that question at this time.

Okay, just on the volume decline in the second quarter. You referenced the timing of shipments. Could you just give a little more color about how the timing of shipments -- how you expect that to play out in the next couple of quarters?

As we said, if you look at what our production -- our sales volumes were all of last -- for 2010, for all of 2011 we've said we expect they will be up sequentially compared to 2010 by a few thousand metric tons, and that is just solely because we're -- generally, we're selling everything that we produce and we're still pretty much constrained on our production volumes.

So, you kind of look at it -- if you look at what the expectations were for production volumes being up slightly on a year-to-year basis, that would track with our expectations for selling volumes.

Okay, thank you very much.

Trey Grooms.

Yes, good morning. This is actually BG Dickey in for Trey.

Just a question regarding the tax rate. It looked like that it came in a little bit higher at 35%, roughly. I think you guys had previously guided to a full-year number of around 31% to 32%. Can you give us some color on what is going on there and if you have any change to your full-year outlook?

Part of the impact and the change in the effective tax rate depends on the mix of our earnings, and so as the mix of our earnings changes, sometimes that might impact the tax rate slightly on a go-forward basis, and my expectation is that we would have a 34% to 35% effective tax rate on an ongoing basis.

Okay, so 34% to 35% for the back half, you say?

Kelly Luttmer Yes.

Okay, great. Thanks. And then, on a mix question, mix was down 6%, I believe, in the quarter. Can you guys give some clarity on what was the driver there?

We don't really go in -- the question was the mix, the impact of the mix on our sales volume.

We don't go into any detail in our disclosures about product mix and things like that. Obviously, we sell a wide variety of products with different uses, different end uses, that have a range of selling prices, and just depending upon what the customers are asking demand for from period to period, we can see some slight variation in our selling line as a result of what the relative mix of our products are.

It's generally nothing that, on an long-term basis, is anything terribly significant.

Okay, great. And then, just real quickly, the last question would be just on the use of cash. Can you give us your thoughts there? Do you guys plan on using cash to pay down future debt or are you comfortable with the current level of cash that you have on books?

I'll let John St. Wrba, our Treasurer, answer that.

We -- as you know, we did the redemption on the notes earlier this year. We've subsequently paid down the full revolver borrowings that -- and this was subsequent to June 30 -- paid down the full revolver borrowings, so our debt level is down on an absolute basis to €320 million.

We'll evaluate whether or not we want to continue to reduce the 6.5% notes and make that decision at the time.

Okay, thanks. I'll pass it on.

(Operator Instructions). Sara Magers.

Good morning. I was wondering if I could ask the sales volume timing issue and the mix question a little differently.

I know you had said that the sales -- there was some sales volume timing issues within Q2, and I'm just wondering if this timing did impact the pricing, the year-over-year pricing, and then the mix in the quarter. And if so, does that mean that we should have some pullthrough into Q3 on both a sales volume and a mix benefit into Q3?

No, it doesn't impact the price at all, and the timing on getting the shipments out is just a logistical issue that -- you know, can you get it out the door and have it shipped so you can record it, and we don't necessarily just try to rush things out. But sometimes it is hard to get these products out, and I would think that whatever didn't happen in the second quarter immediately happens in the third quarter.

Okay, great. And then, just to follow up, within the press release you had an adjusted segment profit table, and within that you had added back what you termed corporate expense to get to an adjusted, I guess, segment profit line. Could you just give us a little bit more color as to what is within that corporate-expense line item, and I guess, then, why it would be excluded from segment profit?

Things such as the cost of this conference call, not that it's $4 million, but things having to do with being a public company that you wouldn't necessarily incur if we were not a public company, those are some of the types of things that would be going into the corporate-expense line.

Okay, great. Great. Thank you very much and good luck in the quarter.

Thank you.

David Begleiter.

James Sheehan again. I just have a question on -- you mentioned there is an outlook for ore costs in 2012 to be significantly higher. Could you possibly try to quantify that? Would the increase be as large as we saw in 2011?

While we would like to say that we had great insight into what the costs are, at this time we just don't know. Those contracts are generally negotiated in the late fall of each year, and we just don't know.

Okay. And just with respect to new capacity and the need for sustainably higher margins, how much higher do you think TiO2 margins need to go before you're ready to pull the trigger on some kind of capacity expansion?

That is a difficult question because it is going to be specific to each producer. Obviously, there, DuPont has announced some capacity expansions that they have indicated, I think, will come online in the next two or three years.

Our view is that those announced capacity expansions would be eaten up by increase in demand over that timeframe, such that they really wouldn't have that significant of an impact on the supply/demand conditions in the industry.

From our perspective, it's not necessarily achieving some kind of hurdle rate that we might have internally on one day and saying, okay, now we are here, we're ready to start, because there is also a need, in our view, to have a reasonable assurance that there is going to be necessary profit margins that would be on a sustainable basis.

And so, that impacts the timing of when you would make a decision in terms of announcing and starting on some kind of a capacity expansion.

I will say that when -- if the point comes when we, Kronos, because that's all that I can speak for is us at Kronos, when the point comes when we, Kronos, decide that we would be prepared to start some kind of capacity expansion, we wouldn't be starting from ground zero or ground negative because we constructed the last facility in the Western Hemisphere, our Lake Charles plant.

My point is when we get to that point in time, we'll be able to start that process. But we've made no announcements, and from our internal view is we're not at that point yet.

I think an addition to that, too, is just what Greg said, is that we at Kronos, we feel very comfortable that we have the ability in-house.

We've got a very distinguished group of technical people. Dr. Fiand, who is now Vice Chairman of our management committee, actually brought the Lake Charles plant online 20-something years ago.

We are prepared. We don't need to start engineering design, engineering work, site locations, those type of things. I'm not going to get into detail on that, but we feel like if we get to the point where all of the subjectives, not just the data points and the gross profit we hit, but the subjective amounts that Greg mentioned, are met, we believe we can hit the ground running, probably as quick or quicker than anyone else.

DuPont is in the same position. They have a very good technical group. They are prepared. They obviously have announced some brownfield type expansions and debottleneckings.

But we do believe that most other players would have a longer timeline that they would need to get started. Basically, they'd need to start from the very beginning, design work and that type of thing.

We feel like we have probably at least a year work in our pocket, just because we have built the last plant. We still have the people. We have the design. We'd design it virtually identical to our other four chlorination units in the world.

So we do believe that we're fully prepared to move when we think that we can do it and increase returns to stockholders. We are very much in tune with we only do things that we believe will give a greater return to stockholders, not just to get bigger for the sake of getting bigger.

Thank you very much for the very comprehensive answer.

Just one more on demand. With these very steep price increases in TiO2, can you give us a little color on what you're hearing from your customers about downstream demand in coatings? You reference that your customers are very concerned about assurance of supply. But further downstream in the chain, do you see any evidence of demand destruction or an inability to absorb these increases for TiO2 costs?

No. At this point, we're not seeing any significant demand destruction.

We obviously communicate with our customers on an ongoing basis, particularly in an environment that the industry is in right now. We think our customers understand the dynamics of the industry and understand that there needs to be increased profitability on a sustained basis in order to induce the industry to have any significant increases in the capacity that, in the long run, would provide greater output to their products -- or input to their products.

The other important thing to understand is that titanium dioxide pigments go into literally thousands of different products, the vast majority of which the TiO2 input costs are relatively minor to total manufacturing costs, total input costs.

The paint and coatings industry probably is the largest percentage of input. They're affected probably more than any of the other industry segments. So that is really, maybe, the bellwether of where do you start seeing that the pricing of input cost raw materials are creating demand destruction downstream.

Most of the other industry segments, the percentage is much, much smaller. We don't -- we do, as Greg said, we're in very close contact with our customer base.

I think some of the things we see as shifting within economies. The North American market is, no question, there's -- we're in an economic slump, so that is creating less demand.

It's not creating anything on the pricing side. The pricing isn't slacking off, and we don't anticipate that because it is a global market, as Greg has pointed out, and there is a global shortage. So there is always a home for the TiO2 at ever-increasing prices for the foreseeable future.

That is something that we've been asked. We watch it very closely. We value our relationships with our customers, and we do what we can to help alleviate the burden that they have on them, but the number-one thing is, as Greg pointed out, unless there is margin expansion in the TiO2 industry, the customers will be faced with a shortage for ever.

So there's got to be capacity added, and the only way that capacity of the magnitude needed to meet growing demand worldwide is that it's got to have profits that will induce people to spend the very significant capital cost and the time involved.

Very good. Thank you very much.

[Michael Schrechaff].

Can you just talk about, with volumes that were down just slightly, is that a function at all of taking any additional downtime at the plants, unplanned downtime? Many of these plants have not been run at the rates they're being run at now in decades.

So just wondering if, as you're running the plants at these levels, are you seeing more maintenance issues?

The timing of the shipment volume is not a function of the production level. In fact, you know, our production volumes were up from last year.

I mean, that said, your point is well taken in that we are running our plants full out and have been for several quarters. That's one reason that our maintenance costs are a little bit higher. The plants were built and designed to run as much as they can, and that is obviously how we like to run them, to keep them going as much as we can.

But the answer to your base question was no. They're not related.

And if there were any industry -- have there been unplanned outages in the industry in the quarter? Generally, that would be more favorable for pricing over time, wouldn't it be? Just it would create more of a shortage on a short-term basis.

We're not aware of any significant unplanned downtime in the industry that we're aware of. In terms of whether that were to occur and what the impact that would have on the pricing level, I think it would probably be a function of the magnitude of the duration of that unplanned downtime.

Okay. Thank you.

[Nicholas Walter].

Hi, gentlemen. Could you talk a little bit more on the context of feedstock prices? You mentioned you expect them to go up for 2012. In speaking to some of the ore producers, some of the ilmenite producers, they're talking about $300 to $400.

I'm just trying to understand, one, what is the pricing level where you see feedstock prices today, because there isn't a ton of transparency? And two, at what price do you -- you talked about sort of your margins getting squeezed to the point where you don't want to expand capacity. If we use ilmenite as a proxy, the ilmenite producers will say up to $700, that's no problem. It sounds like that is not true.

So I'm trying to better understand a little bit about where these feedstock prices are, and at what levels do you think that they are effectively too high and are going to put pressure on your business?

We don't disclose what our absolute feedstock ore costs are. So I'm not able to give you any kind of a context or detail into that.

I would say the best way to answer your question is to refer back to something that Steve said, in that there is a -- the co-dependency relationship between, on the one hand, the feedstock producers and, on the other hand, the TiO2 industry. They know that they're an essential raw-material ingredient into our product, and we know that as well.

But the health of the TiO2 industry is -- obviously, it should be a concern to the feedstock producers, just as we understand that the health of the industry of our various customer bases are important to us.

So, what level of feedstock price? As we said, we don't know what they're going to be next year. But we do think that all these various players understand that whatever happens, that there has to be -- they have to be at a level that the various other participants in the supply chain can react to and can continue to run their businesses.

We also recognize -- again, we value long-term relationships, both upstream and downstream, our customer base. We have many of our customers that have been with Kronos for a long, long period of time.

And looking upstream, we have similar relationships with most all the ore suppliers. And when we talk about sustainable profits to put in more TiO2 capacity, it is magnified by the ore producers who actually develop and bring online. New ore deposits are a very expensive venture. It needs to be a very long-term perspective on it, and plain and simple, their profit margins were squeezed so hard over the last 20 years that there was very little development of ore body.

So they are cautious, as the TiO2 industry is, not to jump the gun too far. They clearly see there is a shortage, but they also know that if margin started to become compressed in the TiO2 industry, which is their major customer, the TiO2 industry, that that does not bode well for the capital costs that they put in to develop ore.

So it is very interesting and, as we have used the word, co-dependency type relationship. Our wagons are hooked very close together, and we believe that the ore businesses are managed by people that are -- understand that very well.

So we do not -- as I mentioned in the beginning, we do not believe ore costs are going to get so far out of line that they hinder margin expansion in the TiO2 industry. That would become a very self-defeating process for the ore producers.

We do know that there has been an extensive amount of work done within the last year, few months, on looking at expanding their capacity. Some brand-new deposits are being looked at, but these are long term, several years to develop brand-new ore bodies. So we feel comfortable, not that there won't be some kind of wild swings along the way, but those all tend to level out over a period of months.

So I think when we see the announcements, which our customers say what is this price increase, if you look at some of the announcements by the ore people, they look astronomical. But we understand what it's going to take for them to get to those profit levels that they need. And if they don't get there, then we're going to live with an ore shortage for a very long period of time.

Right. Could you just comment, then, without talking about pricing levels, but in terms of the nature of the contracts and duration, is the semiannual, so first-half, second-half pricing, is that going to be probably the standard metric going forward, effectively what Iluka has been on and what some of the other ore producers are targeting first-half, second-half pricing for ore?

Similar to the -- what we said about price, any other terms of the contract, we don't know yet because we just -- we haven't had those discussions yet.

Okay. Thanks.

Edward Yang.

Good morning. It looks like the supply situation on the manufacturing side looks quite good for the foreseeable future, but what about customer inventories? How do you -- in your estimation, have customers changed buying patterns or are they accumulating inventory, destocking, et cetera?

We can't see that there is any change in our customer inventory levels. I think it would be difficult in a period of an industry shortage for them to increase their inventory levels.

When customers are asking for more product than what we are able to supply them, I think that tells me that their inventory levels are not really changing appreciably.

So it's quite lean?

We actually very intentionally watch that matrix. We have most of our customer base on an allocation system.

We don't have enough product to satisfy all of the requirements of our customers. So we watch closely that one customer isn't basically buying ahead and building inventory and hoarding, which would allow us -- would prevent us from maybe satisfying the critical needs of another one of our customers.

So we're watching that. We believe our customers understand that. We just don't have enough product to satisfy all of the needs and provide a cushion for the customers who basically build inventory.

We are very in tune with the needs of our customers, so the last thing we want to do is not provide the critical amounts of supply to our customers. Again, we value these relationships, a long-term view of things, so we -- basically, we believe we have a good handle on that.

Are some of them putting a few bags of TiO2 in the back warehouse, if they can? Of course, if they can do it. It would be a smart move.

We just don't believe there is that much product out in the market for them to do any significant inventory builds.

Okay. And we have kind of seen what you've been able to do on the pricing side in a modestly growing and expanding economy. Prices were up 39% year over year. Given the investor concerns about global slowing, macro slowing, how would you envision pricing to look under a scenario of flat GDP growth, so 0% growth or 0% demand growth, or a modest decline in demand?

I guess one simplistic look at it would be is if we had zero GDP growth, everything would be status quo as of today, which means there would be a shortage of product for downstream customers, which is still a pretty good environment to be in.

Obviously, if globally we got to a zero GDP growth, a lot of really pretty major things have happened in the worldwide economies. We do have -- clearly, the U.S. economy is lagging well behind both Europe and very far behind most of the export and the fast-growing economies of the Middle East, South America, Latin America, Asia.

But as Greg pointed out earlier, we feel the pain of the U.S. economy, but for this particular product, it's a global product. It is easy to ship. Shipping costs are low.

Could we ship all the product out of North America into export markets? Yes. Do we intend to do that? No, because there's always going to be customer needs in this country, and we have these longstanding relationships that we are servicing.

That doesn't change the fact that we have global pricing. We believe that that is imperative, that we don't have a dislocation of product and pricing of our product. But I think the -- to get to a zero global GDP growth, a lot of really bad things have happened in the world, and it's beyond our ability to project what that would mean.

Okay. Thank you.

Osman Taher.

Hi, guys. I guess just following up on the last question, can you comment on what kind of growth you're seeing from emerging markets, such as Latin America, Eastern Europe, and China?

I think demand in those regions are fairly strong. So, yes, we're seeing good demand in those regions.

Got it. And I guess I'm trying to triangulate on your -- I guess on your numbers for second half of this year. Just based on, I guess, your cost inflation guidance, is it reasonable to assume $20 million to $50 million type inflation in second half of this year?

I think I understand your math. I understand how you're getting your math. We don't give any kind of guidance or components of guidance. So I'm not able to directly answer your question, but I understand your math.

But I guess, I mean, your production is -- and your sales are not really going up that much, and you have given [per g&a] inflation guidance, so we've seen the first-half numbers, and I guess we can even back into a 50 million type or 25 million type number for the second half of the year. And I guess if you could just spend a minute or two on -- I guess if you -- if you could just comment on what portion of your raw materials are still uncontracted for second half of the year? Is there any room for inflation and any others like feedstock buckets for second half or is everything just fully contracted?

I think most significant inputs we have contracts for. Our 10% to 15% inflation over 2010, that is consistent with where we were at the end of the first quarter, and we see nothing that would change that expectation through the end of the year.

And I guess, I mean, looking at your price increases for titanium dioxide for the second half of the year, do you think it is reasonable to assume, like, $750 to $1,000 per ton of realized price increases in the second half compared to the first half?

We -- I will say that we do expect that we will have additional price increases that will be announced. Some have already been announced to be implemented in this last half of the year.

I think it's reasonable to assume that there will be additional increases that we will announce that would be implemented before the end of the year.

But the timing and the magnitude of those increases, we don't give any guidance. Those are things that we look at internally and make the announcement at the appropriate time. We've never given that guidance before and we're not able to do it at this point, either.

So I guess just to clarify that, you've already announced about (inaudible) year-over-year price increases, I'm looking at about EUR1,200 of price increases through the course of this year. Is that -- I mean, so you're basically suggesting that we could see additional price increases to be implemented above and beyond EUR1,200 for this year.

As I said, it's reasonable to assume that there would be additional price increases, up and above what we have already announced, that would be implemented sometime during this year.

Got it. Thank you.

Charles Anderson.

Hey, guys, this is Baker Burleson at Fox Point. Two questions for you that were sort of things that were popular topics, I guess, when you guys did the road show that I'd just love to get updated thoughts on. One being potential capacity coming out of China, and two being thoughts on consolidation of the industry now that Tronox is out of bankruptcy and is a more, perhaps, freely-trading asset? Thanks.

As to the first question, we have seen some additional supply of product coming out of China the last few months. But that said, it has been nothing that has been any significant -- it has not been significant and it is nothing that has changed our view that we don't think China in the near term is going to have any significant impact on the global supply/demand relationship.

As to consolidation in the industry and Tronox, Tronox is a public company now, and I know they had a call recently. As to what might happen to Tronox or some of those assets, that is something that, I guess, you would have to talk to Tronox about.

I agree with what Greg just said, is that we -- I think everybody has been waiting around for them to come out of bankruptcy because it was not realistic that anything would happen with those assets, once they went down a restructuring route versus an asset sale route, and you're referencing back to the road show.

At that point in time, we thought there was a realistic chance that the assets would be sold, the assets versus the whole company, and that it would be an asset sale versus a restructuring. The creditors saw the same thing we saw, which was an incredibly low valuation at that time, and were able to get the court to swing it over to a restructuring.

It took them a long time to get out of bankruptcy, but they are out, and we do expect that those assets are probably at the top of the list, there is the potential to be moved around in the industry, just because the vast majority of their shareholder group didn't get their stock by buying it. They got it because they were creditors, and normally they want to maximize their returns and then exit because that is not really why they are in the stock.

The timing of that is difficult to tell, and Greg is absolutely right. Those questions are probably better posed to Tronox.

We do believe that there are other potentials in the industry for consolidation. It isn't a large industry to start with. There's only five main players in the world, and then there's a second tier of a handful of players. So, there's not a whole lot of industry out there to consolidate.

We do believe that the industry -- most assets have found a home on a long-term basis. We do believe that most of the owners are fairly financially disciplined from the days when there were maybe twice as many producers as there are now.

But we are constantly interested in expanding our capacity, either building something or buying something. We would still prefer to buy versus build. We just think that is a better route, and that all depends on valuations. And the main reason for that is you start earning money from day one versus four or five years of putting money out before you come online.

But we'll only do that if we believe we can improve our Company, improve the profitability, improve the cash flows, and basically improve the returns to our stockholders. That is our perspective, but we do expect some changes within the next few months to a year. I know we have been saying that for the last year, but we still expect that to happen.

Ladies and gentlemen, this concludes our question-and-answer session on today's call. Thank you for your participation and you may now disconnect. Have a wonderful day.