Venator Materials PLC Ordinary Shares

gap financial measures in our earnings release which has been posted to our website at www.venatorcorp.com it is now my pleasure to turn the call over to simon thanks kate and good morning everyone welcome to our third quarter 2021 earnings call beginning on slide three the macroeconomic environment had been challenging in the third quarter generally healthy demand was dampened by supply chain disruption and a rapid increase in energy, shipping, and most raw material costs. Our businesses performed well during the third quarter, despite the challenges we continue to face, and I would like to thank our associates for their ongoing efforts and continued hard work as we navigate these challenges. Venator delivered $48 million of adjusted EBITDA in the third quarter compared to $17 million in the third quarter of 2020 and $43 million in the second quarter of 2021. Turning to slide four on our titanium dioxide segment. Third quarter adjusted EBITDA from our titanium dioxide segment was $54 million compared to $21 million in the prior year quarter and $36 million in the second quarter of 2021. Throughout the third quarter, we continue to see robust demand for our functional TO2 products across all regions and sectors. Demand for our specialty TO2 products continues to improve. specifically for TIO2 into textiles applications. Our inventory levels remain historically low despite increased production during the quarter. TIO2 sales volumes increased 11% compared to the COVID impacted prior year quarter and declined 1% sequentially due to low inventory levels entering the quarter and maintenance that extended into the third quarter. CIO2 average selling prices during the third quarter increased 12% compared to the prior year period and 5% sequentially. In local currency, we have successfully implemented price increase initiatives during the year and expect further increases within 2022. During the third quarter, we saw significant cost pressure due to rising prices of energy, shipping, and most raw materials. Although we fixed a significant portion of our cost base, we are still subject to market rates for a certain portion of our variable costs. In addition to our price increase initiatives, we are implementing additional fourth quarter surcharges to preserve our margins. These surcharges apply to specific shipping routes and are being selectively implemented on products which are manufactured at certain European facilities impacted by high energy costs. We expect these surcharges to remain in place until energy and shipping costs return to more normalized levels. Turning to the outlook for TO2, we expect to see robust demand for our functional TO2 products across all regions and sectors. We expect sales volumes to be seasonally lower in the fourth quarter, albeit more modest than historical averages. Turning to slide five and performance additives. Our performance additive segment delivered adjusted EBITDA of $5 million in the third quarter of 2021, compared with $5 million in the prior year period, and $18 million in the second quarter. Seasonally strong demand continued for our functional additives products into automotive electronics and coatings applications and color pigments into coatings and construction and markets in all regions. This seasonally strong demand was dampened by supply and logistic challenges in the quarter. We expect these favorable demand trends to continue into the fourth quarter and follow normal seasonal patterns. Although we have seen softer demand for our timber treatment products in the third quarter, we expect demand to return to normal seasonal levels in the fourth quarter. In total, we expect fourth quarter volumes for this segment to be seasonally lower than the third. As with our TO2 segment, we have seen costs increase significantly over the quarter. We are currently in discussions with customers to implement the combination of increased selling prices and surcharges for energy in order to mitigate these higher costs. We expect to fully offset these increased costs through increased selling prices in early 2022. Turning to slide six and our cost programs. Our 2020 business improvement program has delivered over 40 million of savings to date compared to the 2019 baseline, and the program remains on track. In the third quarter of 2021, we delivered incremental savings of 10 million from our 2020 business improvement program, and $16 million of temporary COVID savings from the third quarter of 2020 reversed. We are lowering our estimated restructuring costs to deliver our 2020 business improvement program to approximately $40 million. I will now pass the call over to Kurt for him to comment on our financials.

Thanks, Simon. Let's go ahead and turn to slide seven and review our adjusted EBITDA bridges. Adjusted EBITDA for the third quarter increased $31 million compared to the prior year period. The increase was primarily attributable to an improvement in our average selling prices, which was primarily driven by a 12% improvement within our TIO2 segment. Total sales volumes, including mix, increased 7% as the prior year period was impacted by the COVID-19 pandemic. Cost of goods sold increased due to higher energy, raw material, and shipping costs. These costs were partially upset by benefits from our 2020 business improvement program and the favorable impact of higher plant utilization in the current year period. Compared to the second quarter, total adjusted EBITDA increased by $5 million. The increase was primarily due to increased TO2 average selling prices of 5%. and benefits from our 2020 business improvement program. This was partially offset by seasonally lower sales volumes in our performance additive segment and increased cost of goods sold due to higher energy, raw material and shipping costs, as well as the reversal of 2020 temporary COVID savings. Turning to slide A and our cash flow considerations. We have simplified our free cash flow definition to cash provided by operating activities, less capital expenditures. Within our earnings release, we have included additional supplemental information on Table 7. In summary, our third quarter free cash flow was negative $13 million as we ramped up activity for capital expenditures and paid the semiannual interest due on our notes. We continue to closely manage our working capital, which was a $16 million source of cash in the quarter. though we still expect it will be a modest use of cash for 2021. We expect 2021 total capital expenditures to be approximately $75 million, which includes a modest investment in some discretionary projects that support future growth. On October 15th, we successfully completed the refinancing of our ABL facility and extended the maturity to 2026. Importantly, We do not have any significant debt maturities until 2024. We recently completed evaluation for our largest pension plan that takes place every three years. As a result, we expect to save more than $20 million in future cash payments compared to 2020. In the fourth quarter, we expect to receive a refund of approximately $20 million representing monies paid into escrow this year while the valuation took place. We are currently working with the pension trustees to transfer assets and liabilities from this pension plan to an insurance company, commonly referred to as a buyout. We anticipate this could take one to two years. With that, I'll turn the call back to Simon for some concluding remarks. Simon?

Thanks, Kev. Turning to slide nine. CIO2 fundamentals continue to be robust, and we are pleased to see further recovery in our specialty business. Our order books for the fourth quarter are seasonally healthy, inventories remain historically low, and Chinese exports into Europe remain stable. We have ramped up our production levels, and as a result of muted seasonality, we expect to see some modest inventory replenishment in the fourth quarter, specifically in December, which will support our customers in early 2022. The recent increases in prices for energy, shipping, and raw materials, in many cases, has risen to unprecedented levels, and we expect these costs to remain elevated throughout the fourth quarter. In addition to our normal fourth quarter price increase, we are implementing surcharges within the quarter to mitigate the inflationary impact of energy and freight and preserve our margins. These surcharges are short-term, and we continue to closely monitor rates, which will determine the duration. We expect favorable TO2 fundamentals to continue and therefore anticipate further price increase in 2022 as we remain committed to expanding our margins. We will continue to work closely with customers as part of our customer-tailored approach. We continue to see healthy demand for our functional additives and color pigments products from our performance additive segment. We have seen softer demand for our timber treatment products, and we expect to see timber treatment demand normalized in the fourth quarter and expect to see normal seasonal demand for functional additives in color. The performance additive segment continues to be cash generative and delivering on its portion of the 2020 Business Improvement Program. We continue to see additional opportunities for long-term EBITDA improvement. Our 2020 Business Improvement Program continues to remain on track to deliver the full $55 million of benefits by the end of 2022. So far, this program has delivered more than $40 million of savings as we remain focused on controlling our costs and expanded our margins. As Kurt mentioned, evaluation of our largest pension plan was recently completed, and we expect more than $20 million in future annual cash savings compared with 2020. This valuation and outcome are an important milestone for Beneteau. We continue to focus on working capital management and optimization of our exit from our Pori TO2 facility as we work towards improving our cash flow profile. We reiterate our strategy to deliver on our cost control and improvement initiatives, improve our cash flow profile, and to deliver on our customer tailored approach as experts in pigments and additives. I would like to thank you for your continued interest in Venator. I would now like to open the call for questions.