Venator Materials PLC

Thank you, Chris, and good morning, everyone. I am Kate Robertson, Investor Relations for Venator Materials.

Welcome to Venator's third quarter 2020 earnings call. Joining us on the call today are Simon Turner, President and CEO; and Kurt Ogden, Executive Vice President and CFO.

This morning, we released our earnings for the third quarter 2020 via press release and posted the release and accompanying slides to our website at venatorcorp.com. During this call, we may make statements about our projections or expectations for the future.

All such statements are forward-looking, and while they reflect our current expectations, they may 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 quarter. We will also refer to non-GAAP financial measures, such as EBITDA, adjusted EBITDA, adjusted net income, free cash flow and net debt.

You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website. It is now my pleasure to turn the call over to Simon.

Thanks, Kate, and good morning, everyone. Welcome to our third quarter 2020 earnings call.

Firstly, I would like to thank all our associates for how they have responded to the constant challenge of the COVID-19 pandemic. They are all a credit to our business and our values.

Let's begin on Slide 3. Venator delivered $17 million of adjusted EBITDA in the third quarter.

Our total sales volume declined 9% compared to the prior year period, primarily as a result of the pandemic. Compared to the prior year quarter, we have seen a gradual recovery in demand for most of our products, resulting in a 3% increase in sales volumes, notwithstanding the fact that the third quarter is traditionally seasonally weaker than the second quarter.

And we suffered the impact of Hurricane Laura within our TiO2 segment. I would also like to point out that our timber treatment and color pigments businesses continue to demonstrate resilience in the challenging macroeconomic environment.

We delivered 24 million of free cash flow in the quarter, primarily due to reduction of inventories as we aligned our production to meet demand. Turning to Slide 4 on our cost programs, we are continuously looking to implement additional self help actions to improve our cost profile and competitiveness.

As you know, we have had several cost reduction programs that we have successfully delivered on. As previously promised, we recently started a new 2020 Business Improvement Program focused on further reducing our cost.

We expect this program to deliver $55 million of annual EBITDA improvement by the end of 2022 compared to 2019. The 2020 Business Improvement Program is incremental to our 2019 Business Improvement Program and includes 10 million of color pigments savings previously identified and as well as $45 million other savings from manufacturing cost improvement and SG&A.

As a result, we anticipate there will be an approximately 10% reduction in workforce, primarily in Germany. These savings will more than replace approximately $30 million of non-recurring savings from our COVID-19 initiatives.

The manufacturing cost improvements come from across our network and include our intention to permanently reduce 50 kilotons of TiO2 and 50 kilotons of functional additives nameplate capacity in Germany. We expect future cash restructuring costs to deliver the 2020 Business Improvement Program to be within the range of $45 million to $50 million.

Of the $60 million we expect to save in 2020, we have recognized around 75% of these savings year-to-date. In 2021, we expect to deliver total savings of approximately $65 million as we more than offset the non-recurring savings from our COVID-19 initiatives.

Turning to Slide 5, and our Titanium Dioxide segment. In the third quarter, our Titanium Dioxide sales volumes increased by 2% compared to the prior quarter.

Excluding the impact of Hurricane Laura, the improvement would have been 4%. TiO2 sales volumes declined by 11% compared to the prior year period, and represents an improvement from the second quarter comparison, as we return to a more normalized demand environment.

Our average TiO2 price remained stable in USD, but declined 3% sequentially in local currency, particularly as a result of unfavorable product mix which lowered the TiO2 average selling price. Looking at our business regionally, on a relative basis, North America was the most resilient region in the quarter, followed by APAC and Europe.

Excluding the impact of Hurricane Laura, sales volumes in North America were comparable to the second quarter. APAC demand was stable with the second quarter, and there was a notable recovery in Europe primary of our functional TiO2 products, which was expected as Europe was impacted by the most restrictive policy responses to the pandemic in the first half of 2020.

In the third quarter, we generated $21 million of adjusted EBITDA in our Titanium Dioxide segment, compared to $51 million in 3Q '19 and $35 million in the prior quarter. The impact of unabsorbed fixed costs as we moderated production at our manufacturing facilities to better align with demand was the largest driver of the decrease.

These costs were partially offset by our cost reduction initiatives. Turning to the outlook, we are monitoring the current resurgence of COVID-19 across various locations and corresponding impacts on our businesses.

At this moment, our sales in October and order book for November do not suggest any further weakness to the COVID-19 resurgence. In the fourth quarter, we expect to see some seasonality with our sales volumes compared to the third quarter of 2020 and expect prices to remain stable.

We are beginning to see a modest improvement in textile demand within our specialty TiO2 business. The pace and shape of recovery remains contingent on policy responses to the pandemic.

Turning to Slide 6 and Performance Additives, revenues in the third quarter of 2020 were similar to the prior year, and improvement in average selling prices and positive sales mix more than offset lower demand related to COVID-19. We continue to see weak demand in automotive end-use applications impacting demand for certain of our functional addictives products.

On the other hand, we continue to see strong demand for our timber treatment products as DIY trends in North America remained healthy. Sequential volume in color pigments improved significantly in the quarter, which is typically seasonally softer due to higher construction sales, which in turn reduced the average selling price.

The Performance Additives4 segment generated $5 million of adjusted EBITDA in the third quarter, down $8 million compared to the prior year period. The impact of unabsorbed fixed costs as we moderated production of our manufacturing facilities to better align with demand was the largest driver of the decrease.

These costs were partially offset by our cost reduction initiatives. As I mentioned earlier, we intend to rationalize capacity of our functional additives facility in Germany to further manage our controllable costs.

These actions along with the $10 million color pigments cost and operational efficiencies will deliver incremental EBITDA within the Performance Additives segment through 2022. As in our TiO2 business, we are monitoring the current resurgence of COVID-19 across various locations for any impact to our Performance Additives businesses.

At the moment, our sales in October and order book for November, do not suggest any further weakness due to COVID-19 resurgence. In the fourth quarter, we expect demand to decline in line with normal seasonality and pricing for our Performance Additives segment to remain stable compared to the prior quarter with differences by product and application.

I will now pass the call over to Kurt to discuss our financials. I will then return to provide some additional comments.

Kurt?

Thanks, Simon. Let's go ahead and turn to Slide number 7.

In the third quarter, total adjusted EBITDA declined $33 million compared to the prior year period. The decline was primarily attributable to lower demand resulting in lower sales volumes and unfavorable fixed cost absorption as we moderated production at our plants, while managing our inventory levels in response to the needs of our customers during the COVID-19 pandemic.

These were partially offset by lower SG&A costs from our Business Improvement Program and our COVID-19 cost reduction initiatives. Compared to the second quarter, total adjusted EBITDA decreased by $20 million.

The decline was primarily attributable to unfavorable fixed cost absorption as we moderated production at our plants while managing our inventory levels in response to customer demand during the pandemic. This was partially offset by a sequential improvement in sales volumes in our TiO2 and Performance Additives segments.

Turning to Slide 8 and our cash flow bridge, we continue our intense focus on improving our free cash flow profile. In the third quarter, we generated $24 million of positive free cash flow.

This was primarily due to efficient working capital management, as we aligned our production network to meet demand with a strict focus on inventory management. Looking forward to the fourth quarter, we are further reducing our estimated 2020 cash uses associated with restructuring and Pori related items by $5 million each.

At the end of the third quarter, total liquidity was $472 million, consisting of $208 million in cash and $264 million of undrawn availability under our asset based revolving lending facility. We do not have any significant long-term maturities until 2024.

We will continue to exercise rigorous discipline over our cash usage and capital deployment as we work toward improving our operational cash flow. With that, I'll turn it back to Simon.

Thanks, Kurt. On August 28, we announced that the funds advised by SK Capital Partners, LP have agreed to purchase approximately 42.5 million shares, representing just under 40% of Venator’s outstanding shares from Huntsman Corporation.

The transaction is subject to regulatory approvals which are progressing well and the transaction is expected to close near year end. Our third quarter results demonstrate our commitment to our customer-tailored approach, the execution of our business improvement programs and our relentless focus on cash generation.

Our business is beginning to see gradual recovery demand for most products, notwithstanding what is traditionally a seasonally lower quarter, and the impact of Hurricane Laura in our TiO2 segment. In the fourth quarter we expect historical seasonal patterns to be muted with stable selling prices.

A favorable benefit from increased production rates will largely be offset by higher feedstock costs and lower savings from our non-recurring COVID-19 initiatives. Our strategy remains as follows.

We are committed to our customer-tailored approach in both our TiO2 and Performance Additives segments. This balance has been anticipated effect of reducing margin volatility and improving visibility for us and our customers.

We are focused on strengthening our leadership position in specialty and differentiated TiO2, as well as improving the mix in our Performance Additives segments. As promised, we have identified new cost savings, which along with the $10 million color pigments cost and operational efficiencies will deliver $55 million of annual savings by the end of 2022 and improve the cost competitiveness of our business.

This new program builds on our successful delivery of prior cost reduction and initiatives. As Kurt mentioned, we delivered positive free cash flow in the third quarter, and our expected cash uses in 2020 will be significantly below that of 2019.

We are fully committed to maximizing shareholder value through active portfolio optimization. The process to explore a potential sale of the color pigments business remains on pause due to COVID-19.

In the interim, we remain committed to enhancing the profitability of this business. Notwithstanding the uncertainty surrounding the resurgence of COVID-19, we continue to execute our strategic priorities.

I am encouraged by the positive signals in the third quarter, the strength of our order book and our new improvement initiatives that will strengthen our competitiveness. With that, we thank you for your continued interest in Venator.

I would now like to open the call for questions.

Thanks very much, Chris. And I'd just like to say to everyone on the call, thank you, thank you to all our associates for your work, our customers and suppliers, for working with our business and we hope you will stay safe, at this time of course as ever, and we really look forward to resuming the times where we can see you personally face-to-face and conduct meetings with you.

And with that, please don't hesitate to reach out to Kate here in Investor Relations. Thank you for your continued interest in Venator and we look forward to speaking to you again on future occasions.

Thank you very much. Operator Thank you very much, sir.

Ladies and gentlemen, the conference is now concluded. Thank you for attending today’s presentation.

You may now disconnect.