Venator Materials PLC Ordinary Shares

Good day, and welcome to the Venator First Quarter 2020 Earnings Call. Today's conference is being recorded. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star, then 1, on your telephone keypad. To withdraw your question, please press star, then 2. I would now like to turn the conference over to Jeffrey Schnell. Please go ahead.

Thank you, Cassidy, and good morning, everybody. I'm Jeffrey Schnell, Director of Investor Relations for Venator Materials. Welcome to Venator's first 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 first quarter 2020 via press release and posted the release and accompanying slides to our website at VenatorCorp.com. During the call, we may make statements about our projections or expectations for the future. All such elements and statements are forward-looking, and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the 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 the 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.

Thank you, Jeff, and good morning, everyone. Before we get going on the call today, I'd like to, on behalf of Team Venator, send out our best wishes to all participants on the call, and we hope you and your families remain safe. Tough times, so we send those wishes to you. I'd like to start by turning here to slide three. Venezuela had a strong start to the year, and in the first quarter delivered $57 million of adjusted EBITDA and $0.11 of adjusted diluted earnings per share. We continue to make progress on our strategic priorities, We are executing on our business improvement program, and we have responded promptly and decisively to the unprecedented challenges brought on by the COVID-19 pandemic. Turning to slide four. While the COVID-19 pandemic had little effect on our Q1 results, the disruptive lockdown and economic impacts that continue to unfold are unprecedented. While this has no true parallel, It is important to note that Venator has navigated through a number of industry demand destructive events, both in 2008 and 9, and more recently the second half of 2018, along with several other challenges. We have an experienced team, and while the severity of economic impact remains largely unknown, I am confident we can deal with the impact on our business. In each of the prior challenges, it was crucial to be proactive at Decisively and at Speak. We have done just that, and I'm encouraged by our progress. In this regard, I want to outline key observations about our business and our plans. My leadership team and I quickly implemented a range of actions prioritizing the safety of our employees and the integrity of our operations. Substantially, all our office-based employees are working remotely, and we have put in place several safeguards to protect our manufacturing sites. We are currently operating all our manufacturing facilities in accordance with local guidelines. Additionally, we have enacted a wide range of other safety measures, including social distancing and reducing the number of people present on our sites. Venator's portfolio provides some key structural buffers against the impact of COVID-19. We have greater sales into plastics applications, and some of these products are critical for downstream products used in the protection and treatment of diseases, including medical-grade plastics, PPE, and food packaging. Also, our inks portfolio is largely used in food packaging applications, which have shown greater resilience as the impacts of the pandemic have played out through economies. We already see the strength evident in our order pattern by application. COVID-19 had a limited impact on our operations in the first quarter of 2020. All our manufacturing sites are able to operate, and production is aligned to our customer-tailored approach. This approach enables us to meet our customer commitments while balancing our strategic priorities. We are working in close collaboration with our customers and suppliers to manage and mitigate potential risks to the supply chain. Our modular, multi-line production network gives us the flexibility to respond. Our plan, which we intend to build on, utilizes government furlough assistance programs and allows for production moderations to be cost-optimized with limited pressure on margins. We expect TO2D Marble to decline by 15% to 20% sequentially in the second quarter due to coronavirus. This is based on April actuals Current Order Book and Customer Discussions, and we'll have regional differences. In response, we are implementing a range of actions to meaningfully reduce our costs and cash uses and improve our liquidity. These actions are incremental to our ongoing business improvement program. We also have reduced our 2020 planned capital expenditures to approximately $60 million, a reduction of approximately $25 million compared to our prior estimate. In addition, we expect our phased COVID-19 response plan will provide approximately $20 million of cost relief in 2020 through a range of actions. We see many raw material prices and energy costs trending down, particularly those used in our sulfate process, and taken with our advantage on the lower-priced sulfate ores, we see it possible that an aggregate direct cost tailwind is achieved this year. We are maintaining an aggressive stance towards managing our working capital with strict inventory control. At the end of the quarter, we had $216 million of liquidity consisting of cash and availability under our ABL. We continue to assess the impact of COVID-19 on our business and have identified additional measures we could take should conditions warrant. Overall, I believe we have a strong plan in place and coupled with the experienced set of associates in our business, I am confident that Venator will emerge stronger and that the steps we are taking in response to the pandemic will better position Venator for the long term. Turning to slide five in our cost programs. Strengthening our business and improving our cash flow is our top financial priority at Venator. We delivered an additional $4 million of benefits from our 2019 Business Improvement Program in the first quarter and expect to deliver $13 million for the full year. We plan to complete all actions necessary to deliver on our full 40 million target rate by the end of 2020, exiting the year at the full run rate level. However, the timing and constituent elements may be adjusted in response to the COVID-19 pandemic. We continue to implement targeted actions to improve the profitability of our color pigments business. These efforts, which consist of both cost and operational efficiencies, are incremental to our business improvement program and target $10 million of benefits, which we expect to deliver subsequent to the completion of our 2019 VIP. As I briefly mentioned, we expect $20 million of savings in 2020 related to actions we are implementing in response to COVID-19. In addition to my own salary reduction, we have implemented a range of measures throughout the organization, including furloughing employees, moving others to part-time, Salary Freezes and Changes to Bonus Structures. We have also broadly reduced all other discretionary spending. These measures are necessary to meet our objectives. While I am pleased with the execution of our cost initiatives, we continue to monitor the impact of COVID-19 on our business and are assessing the need for additional actions. I am confident in our ability to deliver the targeted benefits as promised. Turning to slide six in our titanium dioxide segment. In the first quarter, our titanium dioxide segment generated 46 million of adjusted EBITDA compared to 30 million in the fourth quarter of 2019 and 61 million in the first quarter of 2019. Our average CO2 selling price declined 1% in local currency compared to the prior year period, but remained stable globally on a sequential basis for the fourth consecutive quarter. This reflects our ongoing approach of matching our supply network to customer commitments to reduce margin volatility. Titanium dioxide volumes declined 1% compared to the prior year period, but improved sequentially in line with historical seasonal patterns. This was primarily a result of lower specialty TO2 volumes and partially offset by higher functional and differentiated TO2 cells and continued strength in the sale of new products. Looking at our business regionally, in North America, demand improved on a year-over-year basis and was roughly flat compared to the fourth quarter. Our pricing in the North American region remained relatively stable, both on a year-over-year and quarter-over-quarter basis, reflecting our customer mix and our customer-tailored approach. Demand in Asia was flat compared to the prior year and down low single digits sequentially. Primarily reflecting our customer and product mix in the region and COVID-19 disruptions. Europe is our largest market for CO2. Compared to the first quarter of 2019, volumes in Europe increased modestly, benefiting from higher sales of new differentiated products and improved demand, especially for plastic products in which we are overweight compared to the industry. On a sequential basis, demand improved in line with historical seasonal patterns. in local currency pricing was relatively stable on both the year-over-year and sequential basis. COVID-19 had a limited impact on our business in the first quarter. Our position in Asia is limited to our manufacturing facility in Malaysia and the export of specialty products. For CO2, China represents approximately 5% of total sales. We saw stronger demand for plastics applications relative to coatings. some of which are used in the healthcare and food packaging sectors for a variety of applications. And we also benefited from continued growth for new products. In the first quarter, raw material costs moved higher, primarily high-grade ores. These headwinds, which were in line with our expectations, were partially offset by lower energy costs, lower SG&A costs, and a $3 million benefit from our business improvement program. Turning to the outlook, As I mentioned earlier, COVID-19 has created unprecedented disruptions around the globe, and the extent of the economic effects remains unknown. We expect demand for our CO2 products to decline 15 to 20% in the second quarter, with regional and application differences compared to the first quarter. We expect pricing will remain stable. We remain vigilant on our self-help initiatives and expect to continue to benefit from our business improvement program. We expect that demand will recover following the COVID-19 pandemic. However, we are not going to try and predict the timing or trajectory. It is worth noting that countries and regions are already beginning to emerge from lockdown, albeit at differing rates. In the interim, we are balancing our near-term actions with our longer-term strategic targets. We are aggressively addressing our costs, assessing further opportunities to enhance our competitiveness, and remain committed to our customer-tailored approach. While we expect near-term disruptions, we continue to believe that longer-term CO2 industry fundamentals remain favorable and that our strategy will better position Benetil for the future. Turning to slide seven and performance additives. Revenues declined 5% compared to the prior year period, primarily driven by a 4% decline in volumes due to soft conditions in certain coatings and construction applications. Our average selling price increased 1% compared to the first quarter of 2019. Color pigment volumes declined compared to the prior year due to low demand for products sold in construction-related applications and portfolio optimization as we exited some low-margin business. This was partially offset by improved demand for certain applications and an improved cost position resulting from our ongoing targeted cost and operational improvement initiatives. Timber treatment volumes declined compared to the prior year period, primarily due to low construction activity in North America. Our average selling price improved due to favorable mix within the business. Functional additive volumes were flat compared to the prior year period. That said, we continue to be impacted by soft demand, especially in automotive coatings, which are partially offset by stronger demand for plastics. We are taking meaningful steps as part of our business improvement programs to offset these market challenges and improve the profitability of this business. The performance additive segment generated $22 million of adjusted EBITDA in the quarter, up $7 million compared to the prior year quarter, This is primarily as a result of our self-help initiatives, lower costs, and our customer tailored approach. We expect COVID-19 will adversely impact demand for our performance additive segment in the second quarter. We believe the impact will be more severe in our functional additives business due to its exposure to auto and coatings. However, we will likely see a broad contraction. We continue to explore a potential sale of the color pigments business. However, the process currently on pause due to the COVID-19 virus. We expect to resume the process as soon as practical. I will now pass the call over to Kurt to discuss our financials. I will then return to provide some additional comments. Kurt?