Huntsman Corporation (HUN) Q1 2010 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2010 Huntsman Corporation Earnings Conference Call. My name is Chanel, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Kurt Ogden, Huntsman Corporation Vice President in Investor Relations. Please proceed.

Thank you, Chanel. Good morning, everyone, and welcome to Huntsman's Investor Conference Call for the first quarter 2010. Joining us on the call today are Peter Huntsman, President and CEO; and Kimo Esplin, Executive Vice President and CFO. This morning, before the market opened, we released our earnings for the first quarter 2010 via press release and posted it on our website, huntsman.com. We also posted a set of slides on our website, which we intend to use on the call this morning in the discussion of our results. During this call, we may make statements about our projections or expectations for the future. All such statements are forward-looking statements, and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the Securities and Exchange Commission for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. In addition, we may also refer to non-GAAP financial measures. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release posted on our website at huntsman.com. Following my comments, Peter Huntsman will review the recent performance for each of our divisions, after which, Kimo Esplin will address certain business trends and financial-related items, and then Peter will provide some concluding thoughts. At the conclusion of our prepared remarks, we look forward to taking questions from you. As we refer to earnings, we will be referring to adjusted EBITDA, which is EBITDA adjusted to exclude the impact of discontinued operations, restructuring impairment and plant-closing costs, income and expense associated with the terminated merger and related litigation, acquisition-related expenses, unallocated foreign exchange gains and losses, losses from the early extinguishment of debt, extraordinary gains and losses on the acquisition of a business and losses and gains on disposition of businesses and assets. We focus on adjusted EBITDA from a management standpoint as we believe it is the best measure of the underlying performance of operations. And we have received feedback from many of you in the investment community that this is how you prefer to look at our business. A reconciliation of EBITDA, adjusted EBITDA and adjusted net loss/income can be found in the appendix of our slides and in our fourth quarter earnings release. Let's turn to Slide 3. In our earnings release this morning, we reported first quarter 2010 revenue of $2,094,000,000, adjusted EBITDA of $123 million and adjusted earnings per share of $0.07 loss per diluted share. Our adjusted EBITDA increased to $123 million in the first quarter 2010, compared to $57 million in the prior year and decreased from $174 million in the prior quarter. Both prior-period figures have been adjusted to account for the re-class of results from our Australian Styrenics business into discontinued operations. Our first quarter 2010 results were negatively impacted by $51 million of production disruptions. $40 million was the result of our planned maintenance outage at our Port Neches, Texas PO/MTBE facility and $11 million was the result of mechanical shutdowns at our separate Port Neches, Texas ethylene facility. With that, I will turn the call over to Peter Huntsman, our CEO, who will discuss our results in more detail.

Kurt, thank you very much, and thank you all for joining us this morning. Let's turn to Slide #4. Our Polyurethanes adjusted EBITDA results of $52 million were nearly double from the prior year despite the negative impact of $40 million from our planned maintenance outage at our Port Neches, Texas Propylene Oxide/MTBE facility, which was completed in March. It had been six years since this facility was last shut down for this type of maintenance, and we shouldn't see this magnitude of planned production disruption for another six years. Huntsman's global demand for MDI [methyl diphenyl diisocyanate] increased 35% in the first quarter compared to the prior year. We continue to see tremendous growth in Asia. Chinese stimulus and our government-stimulus initiatives targeting infrastructure, investment and domestic consumption are a significant driver, but we are seeing strong domestic demand that are quite unrelated to what the Chinese government is promoting. Demand in the Americas improved significantly compared to the prior year, as signs of economic recovery are manifest in installation, automotive and other sectors. We are also seeing increased MDI substitution of formaldehyde resins in wood products and for TDI [toluene diisocyanate] in cushioning applications. In Europe, our largest market, we saw a substantial year-over-year recovery and demand, albeit, somewhat hampered due to colder-than-normal weather. Notable increases were seen across the sector, not as affected by weather and including automotive, adhesives, coatings, appliances and furniture. We're also pleased with the growth in India and Eastern Europe that we are saying. We continue to see healthy demand for MTBE outside the United States. We produced propylene oxide and MTBE at our Port Neches, Texas facility, which was shut down most of the quarter for our planned maintenance mentioned earlier. Contribution margins for MTBE during the quarter were line with historical levels but lower than 2009. Supply-demand levels remained tight even with new volume restarting, which we believe only serves to replace some of the capacity, which was shipped, switched from MTBE to ETBE production. Since the beginning of the second quarter, this facility has been operating at full capacity. Now if you turn to Slide 5, let's talk about our Performance Products division. Our earnings on our Performance Products division were in line with the prior year despite suffering the negative impact of two unplanned mechanical shutdowns during the quarter, which totaled $11 million for a key of means in surfactants raw material. Our Performance Specialty businesses, which represents around 50% of our division's earnings, saw a strong improvement in underlying demand across virtually all markets. First quarter sales volumes increased 26% compared to the prior year, primarily driven by strong demand in the Asia-Pacific region for our amines products. We announced completion of our Ethyleneamines joint venture facility in Jubail, Saudi Arabia with our partner, the Zamil Group this past February. The plant commissioning is almost complete, and we will soon begin deliveries of product. Our share of this joint venture is 50%. However, we expect to consolidate the joint venture result within our financials after commissioning. Within our performance intermediates and Maleic Anhydride businesses, we are seeing steady improvements in global customer demand, albeit, at lower levels than in Specialties. We continue to increase our selling price to offset the increases we are seeing in raw materials. Let's turn to Slide 6. Adjusted EBITDA for our Advanced Materials division in the first quarter was $31 million, nearly 3x the prior-year result. Demand within our core Formulated Systems and Specialty Components businesses combined improved 22% compared to the prior year. We saw significant increases in volume within our coatings, automotive, electronics, aerospace and general industry markets. Our Basic Liquid Resins business is more commoditized and represents approximately 15% to 20% of Advanced Materials revenues. Within this business, we saw demand improved 37%. However, the negative impact of increased raw material costs on the bottom line more than offset the positive effect of the improved volume on the top line. Turning to Slide 7. Our Textile Effects division had break-even earnings in the first quarter, which represents a pivotal point for this business. Retail sales data published recently suggests that rising numbers of consumers are returning to stores and are purchasing clothing and apparel items. This increased demand was reflected in our first quarter sales as volumes increased 18% compared to the prior year. We saw volume increases in apparel and home textiles, as well as specialty textiles across all global regions. Our product mix has improved from the previous year as well. We have been focused on select market segments, where we believe customers are willing to pay for the innovation and technical support we are able to provide. As a result, our underlying sales product mix has improved along with the return in general demand. This business has undergone dramatic restructuring efforts over the last few years from a cost perspective as well. From December of 2008 through the end of 2009, we reduced our fixed cost by more than $60 million. We are encouraged by the improvements in the bottom line of this business and expected to be profitable in 2010. If you please turn to Slide 8. In the first quarter, our Pigments division earned $29 million of adjusted EBITDA. This is the highest level of quarterly earnings since early 2006 and represents an increase of $45 million from the previous year. We have seen a strong recovery in global demand. Volumes improved 33% compared to the prior year and 11% compared to the fourth quarter. This supply-demand balance is tight right now for quality pigments as a result of improved global demand and the impact of both structural long-term and unplanned short-term supply reductions across the industry. Not surprisingly, industry inventory levels are at unusually low levels for this time of year. So from the supply side, there does not appear to be much slack in the system. Our stronger earnings are also in part a result of our restructuring efforts. This program includes the restructuring of our U.K. manufacturing footprint, restart of our restructured well-sustained [ph] plant, reduction of our already industry-leading SG&A costs, as well as driving greater revenue capture from our increasingly differentiated products and service offerings. We continue to see positive momentum on our sales and on our price increases announced earlier and expect further benefits to flow into the second quarter. We are pleased with earnings trend and expect further improvement throughout 2010 as global economics improve. Before sharing some concluding thoughts, I'd now like to turn a few minutes over to Kimo Esplin, our Chief Financial Officer.

Thanks, Peter. Let's turn to Slide 9. We've shown a quarterly year-over-year sales volume chart for the last few quarters now. We think it's a good measure of underlying demand as it compensates for seasonal fluctuations. We've made some adjustments to remove the effects of tolling, by-products and certain businesses that are no longer a part of our business portfolio. We've also added line showing our actual pounds sold and our 2007 pounds sold by quarter, which is a good proxy for normalized demand. Our volumes for the first quarter increased 7% compared to the first quarter 2009, which was down 15%, compared to the first quarter of 2008. By implication, doing the math suggests our volumes are down a net 8% relative to the first quarter of 2008. Adjusting for the effects of the planned maintenance at our Port Neches, Texas facility, our first quarter volumes improved 19% compared to the prior year and 5% compared to the fourth quarter. We are encouraged by this trend and expect that it will continue in the second quarter. However, as you look at our actual pounds sold relative to our 2007 pounds, we still have a gap to close of approximately 4%. Slide 10. In the first quarter of 2010, our adjusted EBITDA increased to $123 million from $57 million in the prior year. The primary reason for the year-over-year increase in adjusted EBITDA was a significant increase in volumes. We saw some positive benefits in margins as average selling prices increased more than direct costs, which are primarily our raw material costs. Of course, the production disruption at our Port Neches, Texas facility that Peter has already discussed, created a negative impact of $51 million in the first quarter of this year. It is worth mentioning that starting this quarter, we reclassified the impact of LIFO inventory accounting gains and losses into Corporate and Other and conformed prior-period results to this presentation. This reclassification has no impact on total adjusted EBITDA. However, we believe it provides greater transparency to the underlying operating results of our Performance Products division. The year-over-year change in LIFO-inventory valuation expense for the first quarter of 2010 reduced adjusted EBITDA by approximately $30 million and is captured in the call entitled Other within this chart. Compared to the fourth quarter of 2009, our first quarter 2010 adjusted EBITDA decreased by $50 million, primarily as a result of the $51 million production disruption at our Port Neches, Texas facility. We are encouraged by the sequential improvement in volume. Average selling prices increased more than direct costs, which include our raw material costs, expanding margins within the quarter. We expect our long-term effective tax rate to be approximately 30% to 35%. However, for 2010, our adjusted income tax rate could be as high as 100%. This unusual tax rate, caused by valuation allowances in countries like the U.K. and Switzerland, has no impact on cash taxes, which is expected to be approximately 20% over the next few years. Because of this, we believe earnings per share for 2010 will be volatile. That's predictable and less meaningful than adjusted EBITDA. Turning to Slide 11. Our year-over-year sales revenue for the first quarter increased 25% as a result of improved recovery in global demand and higher average selling prices. Sales recovery continues to be most dramatic in the Asia-Pacific region, which represents 24% of our sales, with the year-over-year increase of 54%, and other regions reporting solid improvements within the range of 14% to 21%. We saw double-digit increases in revenues across all our segments as average selling prices increased 12% in local currency terms and another 4% due to the effects of foreign currency. On a quarter-over-quarter basis, all of our divisions saw an increase in sales revenue with the exception of Polyurethanes. Polyurethanes were negatively impacted by the production disruptions in Texas. The good news is that our average selling prices increased 10% in local currency terms, partially offset by 2% negative impact from currency as the U.S. dollar strengthened against major European currencies. Slide 12. During the first quarter of 2010, we saw the value of our primary working capital components increase as a result of increased selling prices reflected in accounts receivable and finished inventory, as well as the absorption of higher raw material costs. As a result, we saw a use of cash of $57 million in the first quarter. The inventory chart on the right shows that, although, total inventory values increased 5% from the fourth quarter to the first quarter, we were able to maintain our tight discipline over underlying pounds, which actually decreased 1% over the same period. Beginning January 1, 2010, as a result of changes in accounting guidelines, outstanding borrowings related to our accounts receivable programs are accounted on balance sheet, which has the effect of increasing debt by $254 million. There is no cash impact from this change. The previous periods haven't been adjusted for our GAAP financial statements. Here in Slide 12, we have adjusted prior periods to reflect these changes for purposes of calculating changes in working capital. Slide 13. At the end of the quarter, we had approximately $1.1 billion of cash and approximately $400 million of unused borrowing capacity, summing to a total of $1.5 billion of liquidity on hand. This amount is more than adequate to provide operating flexibility and strategic growth for the company. In connection with our ongoing insurance claim related to the April 29, 2006, Port Arthur, Texas fire, we have received partial insurance proceeds to date of $365 million. We remain in finding arbitration with the insurers. While we continue to respond through requests of the arbitration panel based on preliminary rulings to date, the current maximum amount of any remaining recovery is approximately $170 million. Any additional recoveries will be used to prepay secured debt. We've been pretty active over the past several months, attending to our capital structure. In January, we repurchased all of our outstanding 7% convertible notes due 2018 for approximately $382 million. These notes were convertible into approximately 32.8 million shares. The repurchase of these notes resulted in a loss on early extinguishment of debt of $146 million. We refinanced approximately $350 million our senior subordinated notes due to 2013 and pushed the maturity date to 2020. With the cross-currency swap we executed simultaneous with the bond, our effective euro yield is 8.4% on the note. We also amended our existing bank credit facilities to, among other things, extend the maturity from 2010 to 2014 and reduce the revolving credit facility capacity from $650 million to $300 million. We currently have $225 million committed under the credit facility. We have no cash borrowings outstanding under this facility and expect to use it primarily to facilitate the issuance of letters of credit and bank guarantees. In addition, on April 26, we've prepaid $164 million of outstanding term loans as a result of excess cash flow requirements under the credit agreement. I'll now turn the time back over to Peter for some concluding remarks.

Thank you, Kimo. In February, on our last earnings call, I expressed concern about how much the U.S. demand during the fourth quarter of 2009, the early part of the first quarter 2010, was inventory restocking. Today, while I continue to believe that part of our demand increased over the past few months is inventory restocking, I also believe that the North American economy is stronger than I did in February. We continue to see robust demand in Asia and our growing Latin American markets, and we feel better about North America than we did in February. Europe, which represents approximately 1/3 of our revenues, continues to show tepid improvement, though I believe it is too early to quantify the impact of the Greek Contagion affecting other European countries. In short, demand should continue to improve in the second quarter. The improvement in demand will counterweight rising raw materials and logistics expenses. There is typically a delay of up to three months to collect on price increases after raw materials have spiked. We are also seeing an increase in freight cost and the potential closure or slowdown of the Intercoastal Waterway due to the Gulf Coast oil spill. As our first quarter adjusted EBITDA was impacted by $51 million of production disruption, I think our first quarter adjusted EBITDA without three production disruptions to be approximately $174 million. While demand should be stronger, raw material and logistics should be a short-term headwind. Despite these headwinds in the near term, we are pleased with the recovering demand that we are experiencing in most of our global markets. With that, I'll turn this call back over to Kurt.

Thank you, Peter. Let me remind everyone that we will be hosting an Investor Day on May 12 in New York City. Presenters will include Peter and Kimo, as well as the presidents of each of our divisions. This event will provide a unique opportunity to learn more about our business in an in-depth manner. We invite anyone interested in participating to email us at ir@huntsman.com to register for the event. For those unable to attend in person, the presentations will be webcast. A link to the webcast can be found on our website at huntsman.com within the Investor Relations section, under Presentations and Webcasts. The presentations will begin at 8 a.m. that day, 8 a.m. Eastern. Chanel, that concludes our prepared remarks. Would you explain the procedure for Q&A, and then open the line for questions?

[Operator Instructions] Your first question comes from the line of Robert Koort of Goldman Sachs.

Kimo, you gave a bridge on the year-over-year and quarter-to-quarter trends. I'm wondering if you can give us in light of Peter's comments about the raw material and freight issues. What would that look like, do you suspect, first to second quarter from a price versus cost standpoint? And then maybe, if you think about it over an annual basis, what would that look like?

Bob, you're talking about raw materials?

That's right. Trying to get a sense of the price cost dynamic as you go forward into the next quarter, and then maybe into the second half of the year.

As we look at it, the reason that I was a bit nebulous in my comments here is that if you look at it in the month of April, crude oil look to be pushing upwards of the high 80s. Some were saying that it was going to be touching 90 by the end of the month. Now of course, today, crude oil is down into the high 70s, having fallen off in the last couple of days. And so we're seeing very, very volatile raw material prices across the board. But from the end of the month to the full impact that is going to happen in the second quarter, Bob, I hate to sound evasive on the answer, but from where prices were just two weeks ago to where they are today, it certainly would be a factor of tens of millions of dollars of added cost to our bottom line. If they continue to trend in the last couple of days, it may be significantly less than that.

And Peter, do your customers have enough sensitivity around the cost side that they would seek to defer orders if they thought your cost structure was starting to get better, as ethylene, propylene, benzene start eroding again?

You certainly will see that in some segments. There will be deflationary purchasing influence, as I would call it. For much of our formulated, our systems, our specialty-oriented businesses and so fourth, I don't think that's really a major issue because raw materials make up relatively a small percentage of our overall costs there. But when you do have some products where you have raw materials that make up 50-plus percent and you will have the majority of that being dominated by a single cost, you might see customers pushing off orders for 30 days or so. But as I look at the supply chain, and again I'm speaking kind of across all of the businesses, as I'm speaking, as I'm looking at the supply chain, inventories on our customers certainly are higher than they were a quarter ago. But I would still say that in average, they're below normal. So any deferment, I don't see would be a long-term deferment. It might be weeks, or perhaps, a month at the most.

Your next question comes from the line of Laurence Alexander, Jefferies & Company. Amanda Sigouin - Jefferies & Company: This is Amanda Sigouin on for Laurence this morning. First in the Pigments business, what is your outlook for sequential demand trends? And how should we think about the margins going forward in this business?

I think that as we look at Pigments, again, most of our business is in Europe. And as we've looked at demand in Europe and satisfying customers in North America and Asia as well, Pigments on a longer-term basis is certainly should be just around the GDP sort of a growing business at 2% or 3%. When you look at the impact of that business over the last two years, you certainly have seen an absolute depletion of inventories on the customer side of that. And you are seeing today a restocking of that inventory. But you're also seeing an increase in demand, as we see an improvement in the production rate of automobiles and of housing. We continue to see a stronger sales demand coming back from TiO2. And we would expect that to continue. Quarter-on-quarter, we saw about 11% and year-on-year about 32%. So we'll continue to be pushing for price increases. And I think, again, it's another interesting thing that we probably should keep in mind as well is, as we look at inventory for Pigments, today, we're operating at about 40, 45 days of inventories in industry. And that's down from the mid-50s where we were early in the year. So traditionally, this time of the year, you're typically more in the 50 to 60 days of inventory. So there's pretty strong demand and structural changes taking place in that industry.

The only thing I'd add is that seasonally, of course, in the Northern Hemisphere, the second and third quarters are the strongest volume quarters. So we would expect to see volumes move up just from seasonal demand in the second quarter. Amanda Sigouin - Jefferies & Company: And within the Polyurethanes business, could you please update us on the supply-demand balance for MDI?

I think that, again, on industry-wide, Huntsman, like most of the industry, we have some of our smaller lines that are idle. But I think that the industry is operating today at close to stated capacity. Certainly, they are in Asia and at higher rates in the U.S. than they are in Europe. You have about 800,000 tons that are out of the industry today. I'm talking about right now. And that isn't just two facilities or two or three world-scale facilities around the world. For the most part, that's coming from half dozen to a dozen different producers. And it's a variety of smaller- to medium-sized lines. And so gradually, capacity will come back into the market as demand is able to absorb that. But again, when I take the stated capacity, I subtract out the 800,000 tons of announced closures and idled lines that have transpired in the last 18 months, the industry's probably running in the mid-90% today. Yes, that's MDI. Amanda Sigouin - Jefferies & Company: Do have an outlook for pension expense this year?

Yes. We expect pension expense to be right around $75 million. And our contributions are going to be about $50 million higher than that, similar to what we did in 2009.

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

Eric Petrie sitting in for P.J. Can you talk about market acceptance of your recently product price increases within Polyurethanes, titanium dioxide, and Performance Products?

I think in all of those areas, we're seeing varying degrees of success. But I emphasize the word success. When I say varying degrees, that will be anywhere from offsetting higher raw material prices, as we're seeing in some of our Performance Products areas, to price increases that are going to, not only offset price increases of raw materials, but also improve, go beyond that, improving our contribution margin. Your question though, very good. When I think about that segment by segment, there are really just different dynamics in each of those three areas. The Performance Products for us is everything from surfactants, to amines, to maleic anhydride. And you look in some of those EO derivatives, the capacity is tight and getting tighter, and prices, most likely, will be going up as that tightness will probably continue for another quarter or so at least. TiO2, I think as we stated earlier, demand should be good seasonally, at least for the second and third quarter. Some of the structural changes that have taken place you've had over the course of the last 12 months, about 350,000 kilotons of capacities that have been permanently removed about 78% of that entire industry where capacity has been removed. You also have some short-term operating disruptions in the industry that have tightened up titanium dioxide. And the Polyurethanes, again, the demand continues to be very robust in Asia, not so much in Europe and was continuing to see growing demand in North America. So the price increases will vary across the board. As I said in my comment, some of those will come, perhaps, a month or two after the raw materials hit those, but we believe that we'll be able to maintain, if not expand our contribution margin.

Probably the most visible, at least in terms of large volumes products we have, is TiO2. We announced effective April 1, $100 to $150 a ton price increase depending on the region you're talking about. And we're starting to see through the second quarter varying degrees of success in that price increase.

And then my follow-up question is, the $11 million negative impact in Performance Products due to the Port Neches plant shutdown, has that been resolved as well?

Yes.

We didn't have any damage to equipment as much as we lost the supply of natural gas going into a plant. And that's been fully resolved, and we're back up and running.

Your next question comes from the line of Bill Young of ChemSpeak.

One thing I was worried about is the price competition. You mentioned some of that in MDI, even though the effective operating rate is in the mid-90s. And there was also some price competition in, I believe, the epoxy area. I think you mentioned windmill. This is not so consistent with the concept of Performance Products, and we get more pricing flexibility that's not as competitive. Maybe you could kind of explain the disparity or how I'm looking at it improperly?

Well we've described, Bill, for example, you mentioned epoxies. Absolutely, we described our business as being roughly 80% formulation and component, specialty component-driven, but we do have the 20% Basic Liquid Epoxy Resin business that is absolutely commodity. And so when we talk about erosion relative to epichlorohydrin bisphenol A in our BLR, absolutely, we're seeing a commodity-type product. But in our Formulation and our Component businesses, those contribution margins have been very, very stable, price relative to raw materials. Likewise, the MDI is that way, but of course, you do have some PO/MTBE that has commodity-type of pricing. You mentioned our Performance Products. Our Intermediate businesses do have some commodity components to it, but for the most part, we've structured those as cost-plus-type arrangements, which give it much more stable margins. The vast majority of our Performance Products business is our Mean businesses, which are very stable in terms of contribution margin and also maleic anhydride that tends to be very stable as well.

And how about MDI itself?

In terms of stability of contribution margins?

Yes, right.

Very stable. That business has really been affected by volumes. And we've talked about that over the past few quarters, 2009 because of auto, because of housing and installation and commercial construction really got impacted significantly by volumes. But sort of the contribution margin per unit has been very stable there.

Your next question comes from the line of Chris McCray [ph] of BlackRock.

Just wanted to see if you could give us any guidance on the working capital side in inventory as we get through the year? Was the dip in the first quarter largely seasonal? Or can you highlight any factors that we should consider in our efforts to model cash flow for the year?

Really, it's going to be a function of where you see energy prices going. I think we have been able -- we've shown that we can keep our volumes, our pounds in the tank at current levels. As demand increases globally, we may see that creep up a little bit, but I think we have it pretty well under control. It's really as the raw materials rise, it's going to push dollars up, and it's going to be a function again of your view of crude for the year. If you assumed crude and natural gas are flat and the knock-on effect is our raw materials butane, benzene, methanol are flat, you're going to see a fairly flat working capital line.

Your next question comes from the line of Janus Candellum [ph] of Nomura.

Just wanted to check out on the Pigments division. I mean, obviously, you've seen some stronger demand growth seen in this particular quarter. But I was just trying to understand how exactly are you seeing the pricing, I mean, especially in your core market that is, I think, Europe. So I just like to understand what are your views on how do you think the prices are going to be? And also, the raw material costs, because I think in your presentation you mentioned that the raw material cost is likely going to go up. So I mean how do see this particular division doing over the next quarter or so?

Well, I think that as we look at the division, I think we've talked about the strength that we're seeing in demand. Kimo talked about some price increases that we have. The weakening of the euro will put some volatility in our TiO2 earnings, but by and large, as the euro is weaker, you will see less imports coming into the European market. And you'll see the European market being able to raise its prices on a euro basis, and you will see our cost in TiO2, both in pound sterling and in the euro, where we have most of our productions of TiO2. Costs there will be dropping, and we will actually, I believe, longer term, with a weaker euro and weaker pounds sterling, we'll be able to produce at a more competitive costs compared to North American and some of the Asian producers, and we'll be able to export more. So I think that by and large, we have announced that $150 per ton euro price, and we probably will have some of that offset, assuming that we're able to get the majority. That will probably have some of that offset by some rising raw materials. But I think that the weakening euro and the weakening pound sterling will also have an impact on where we go in the future in this business.

Okay, so would it be advise to -- in a way, I assume that the current level of adjusted EBITDA for the trend would be maintained?

I would always hope that we're able to increase our level of EBITDA. But I think that when we look at it into the second quarter, I think that we have an opportunity here to marginally improve on our EBITDA of our TiO2 business, as traditionally, demand is higher in the second quarter. And I think we have some price increases that are long overdue and well justified. So yes, I would hope that marginally, we would be able to exceed our first quarter earnings in the second quarter with our TiO2.

I was just wondering, after all the latest financial transactions you had done over last three months. I mean, obviously, it helps you extend your maturity profile. You still have about $1.1 billion of cash, and I assume that in one of your earlier calls, you did kind of mention that you would be happy with $900 million of cash, given the current global scenario. I mean, what was the number? Basically, my question is, do you see anymore kind of debt repayments of abuse of cash for any further acquisitions or anything that are coming up in the near term? Or you're still far from it?

We have stated that we think appropriate liquidity, longer term for this business is between $800 million and $1 billion. So clearly, we have a little bit more liquidity at the end of the quarter than we would say we needed on a normalized base. We did say that post-March 31, we used $164 million to pay term loans. So in fact, we've used it already as part of that $1.1 billion to prepay some of our term loans under an excess cash or provision. So we will continue to be looking at our capital structure using excess liquidity to reduce debt and to continue to grow this business.

So if I just go back to the earlier insurance point, you had already mentioned that in case you or your purpose in getting up to $170 million of cash and use it for the repayment of secured loans, that would be over and above as one?

Yes, that's right. On the insurance proceeds? Yes. And I think we need to be clear on that $175 million number. That is a number, a theoretical number, that you come into by the legal arguments that are put before the arbitration panel.

That's the most we can get.

That's the most we can get. And we have a counter-party that's arguing that we don't know anything. So you're somewhere in between that. But it's fair to say that the proceeds of that will go towards that reduction.

Are we to expect any other cash charges just like the MTBE charge in this particular quarter which is going to affect EBITDA the next quarter? Or anything that, I mean, not just the same way, but is there any other one we should keep in mind, please?

We're not aware of any unplanned outages yet in the quarter and we don't have any significant plant outages that we're aware of.

So vinyl comes very easy with [ph] the amount any amount basically as a cash cost in the next quarter?

Right now, no.

Operator, thank you very much, and we'd like to thank everybody. I think that concludes or that we've gone through all the people in the line up here. And we'd like to thank everybody for joining us this morning. And if there's a -- we look forward to seeing as many of you Wednesday for our Investor Day.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.