Venator Materials PLC Ordinary Shares

Materials First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Kate Robertson of Investor Relations for Venator Materials. Please go ahead.

Thank you, Andrea, and good morning, everyone. I'm Kate Robertson, Investor Relations for Venator Materials. Welcome to Venator's first quarter 2022 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 2022 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 involve risks and uncertainties and are not guarantees of future performance. All performance additives comparisons we make on this call exclude the water treatment business which was sold in May 2021. You should review our annual report on Form 20F for the year ended December 31st, 2021 and Form 6K for the quarter ended March 31st, 2022 and our other filings with the SEC for more information regarding the factors that could cause actual results to differ materially from the 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 at www.venetocorp.com. I would now like to turn the call over to Simon.

Thanks, Kate. Welcome, everybody, to our first quarter 2022 earnings call. Beginning on slide three, we are deeply saddened by the military action which has taken place with the Russian invasion of Ukraine. since our last earnings call. And all our thoughts are with those that have been affected. We have suspended sales to Russia, which are approximately 1% of revenues. Although there has been no material direct impact to our business, the conflict has clearly exacerbated cost inflation, most notably energy in Europe and existing supply chain issues. Notwithstanding these challenges, I was very pleased with our first quarter adjusted EBITDA of $57 million. Moving to slide four and our titanium dioxide segment. CIO2 segment adjusted EBITDA in the first quarter of 2022 was 49 million compared to 35 million in the fourth quarter of 2021 and 40 million in the prior year quarter. Demand continued to be strong throughout the first quarter in North America and Europe for all CIO2 sectors. We had a smaller exposure to the APAC region where demand was softer as a result of reinstated COVID lockdowns in certain areas of China. We increased production from our manufacturing facilities during the first quarter. However, as a result of the continued strong demand for our products, our inventory volumes are below historical seasonal norms. Sales volumes increased 15% sequentially, which was the top end of our guided range, and declined 1% compared to the prior year period. In the prior year, we benefited from selling down inventories, which impacted the year-on-year comparison. Cost inflation continued to be a significant headwind in the first quarter. The majority of our energy costs were fixed, but we saw unprecedented spikes in underlying market rates, primarily as a result of the conflict between Russia and Ukraine. We also saw cost inflation headwinds from feedstocks, shipping, and other raw material costs. In the first quarter, we increased our average selling prices 12% sequentially and 29% compared to the prior year period in local currency, enabling us to mitigate inflationary cost pressures and maintain our prior year adjusted EBITDA margin. Turning to the outlook for TIO2, as I mentioned earlier, we continue to operate with historically low inventory levels, and we have seen little evidence of restocking throughout the supply chain. We expect inventories to remain at seasonally low levels throughout the second quarter and the remainder of 2022. Demand continues to be robust and our order book is healthy. We continue to increase production of all products to meet the requirements of our customers. We expect an increase in 2022 sales volumes compared to 2021 consistent with increased production. However, this increase will be constrained by our low inventory levels and the reliability of supply chains and shipping availability. We continue to work with Italian authorities for the approval of gypsum disposal of our Scarlino TO2 site. We are hopeful that this will be successfully resolved in the middle of this year. In the meantime, we have moderated the facility by one third of its capacity, which we estimate will have a net EBITDA impact of less than a million dollars compared to our second quarter forecast. We expect the market rates for energy, primarily in Europe, to remain elevated in the near term. Throughout the remainder of the year, the majority of our energy needs will be purchased through fixed forward contracts. However, we are subject to market rates for the remainder. We implemented tailored monthly pricing and surcharge reviews for all customers in March. We believe that these selling price reviews coupled with cost control measures will mitigate future cost headwinds. We expect these monthly customer-tailored price reviews to continue throughout 2022. This brings flexibility to manage our margins in this increasingly volatile raw material, energy, and freight cost environment, and these initiatives are consistent with our customer-tailored approach. Turning to slide five and our performance additive segment. Our performance additive segment consists of three distinct businesses, functional additives, which supplies products to enhance coatings and plastics products. Our color pigments business, which produces colored inorganic pigments for the construction, coatings, plastics, and specialty markets. And finally, our North American timber treatment business, which manufactures wood preservation chemicals. These businesses generate annual revenues of approximately 600 million and are highly cash generative. We have seen significant earnings uplift over the past two years in these businesses, due to improved product mix of sales and successful implementation of our business improvement programs. Our performance additive segment delivered 20 million of adjusted EBITDA in the first quarter of 2022, compared with 19 million in the prior quarter and 22 million in the prior year period. Strong demand continued for our functional additives products sold into automotive, electronic, and coatings applications. Color pigment demand was strong, primarily for construction applications and for ultramarine blue products, which go primarily into plastics end-use applications. Demand increased for timber treatment products in line with seasonal norms. Segment sales volumes increased 7% sequentially and declined 5% compared to the prior year period. The decline compared to the prior year is primarily due to demand for timber treatment products returning to normal seasonal levels. Our performance additive segment is facing similar challenges of cost inflation and supply chain disruption as our TO2 segment. During the quarter, we saw further sequential cost headwinds from energy, shipping, and raw materials. Although less energy intensive than our TO2 segment, we have implemented similar energy hedging strategies and are therefore subject to market rates on a portion of our energy usage. Average selling prices increased 9% sequentially and 20% compared to the prior year period in local currency as a result of actions implemented to mitigate the impact of cost inflation. We expect demand to remain robust and sales volumes to follow normal seasonal patterns. We continue to see cost inflation in the near term, which we expect to recover through our customer tailored monthly pricing initiative, which commenced in March. I will now pass the call over to Kurt.