Venator Materials PLC Ordinary Shares

Good day and welcome to the Venezuelan Materials Third Quarter 2022 Earnings Conference Call. All participants will be in a 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 a touch-tone phone. 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, Investor Relations. Please go ahead.

Thank you, Betsy, and good morning, everyone. I am Kate Robertson, Investor Relations for Venator Materials. Welcome to Venator's third 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 third 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. You should review our annual report on Form 20S for the year ended December 31st, 2021, quarterly reports on Form 6K and our other 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 relief, which has been posted to our website at www.venetocorp.com. I would now like to turn the call over to Simon.

Thank you, Kate, and welcome everyone to our third quarter 2022 earnings call. Beginning on slide three, macroeconomic uncertainty increased throughout the third quarter, and we experienced a meaningful reduction in demand for our TR2 products sold in Europe and APAC. Energy market prices reached record highs, and other cost inflation continued to increase. Total company adjusted EBITDA in the third quarter was a negative 8 million compared to 61 million in the second quarter and 48 million in the prior year period. Turning to slide four on our titanium dioxide segment. Adjusted EBITDA for our CO2 segment was negative 5 million in the third quarter 2022, compared to 49 million in the second quarter and 54 million in the prior year period. The third quarter started with weak demand in APAC, followed by softening demand in Europe. The decline in demand accelerated throughout the quarter, and we exited the quarter with weak demand in both regions. Demand declined across most end markets, principally as a result of low consumer confidence and China's zero COVID policy. In contrast, our North American sales volumes remained healthy throughout the quarter. In local currency, average tier O2 selling in prices increased 1% sequentially and 19% compared to the prior year period. We continue to hold monthly pricing reviews of our customers as part of our customer-tailored approach. We have seen a decline in Chinese TO2 exports globally throughout the third quarter, and exports to Europe are at the lowest level seen for many years. Throughout the third quarter, energy continued to be volatile and market rates reached record highs. Compared to the second quarter, the higher energy costs coupled with significantly lower volumes drove a negative EBITDA result for our German TO2 facilities. In the near term, visibility into product demand remains limited. By region, we see APAC as the weakest market, with Europe Next and North America the strongest. Despite healthy North American demand throughout the third quarter, we have seen signs of softening in the fourth quarter. Based on our current order book and the demand environment, we expect TIO2 fourth quarter sales volumes to be lower than the third quarter by up to 20% compared to the third quarter. In the fourth quarter, more than 50% of our energy usage is under fixed contracts, with the remainder subject to market rates. In response to the meaningful decline in demand, we implemented a range of strong mitigation actions. During the fourth quarter, we have further moderated certain manufacturing facilities, including temporarily stopping production at our Erdingen and Juesburg, Germany, manufacturing facilities. In Germany, we are utilizing government furlough schemes to help mitigate the impact of the unabsorbed fixed costs. Looking ahead to 2023, we expect to see demand starting to recover during the first quarter and progressing in the second quarter. We also expect to see some relief on the cost of raw materials and energy costs, lower due to government relief schemes from the European countries in which we operate. Once the government energy release schemes are enacted, we expect the benefit to provide significant offset to the roll off of our 2022 energy hedges. I would like to provide a status update on our Scarlino TO2 facility in Italy. As a reminder, our Scarlino facility generates gypsum as a byproduct of the manufacturing process, which has been landfilled on site and also transported for use in the reclamation of an EMI former quarry owned and operated by third parties. During the second quarter, we suspended two thirds of the production from this site to preserve our remaining available landfill capacity. By combining the remaining capacity at the Montioni Reclamation Project, currently approved onsite landfill capacity, and capacity are yet to be approved third party commercial landfill, we believe we have capacity for gypsum storage into the second quarter of 2023 at the current one stream operating rates. As a result of the lower demand environment, we may further reduce production at our Squalino facility. During this time, we continue our efforts to work with Italian government authorities for the authorization of continued gypsum disposal. We remain hopeful that authorizations will be granted. Otherwise, we may be compelled to close the site entirely. We continue to explore all options to avoid that outcome. Turning to slide five on our performance additive segments. Our performance additive segment delivered 9 million of adjusted EBITDA in the third quarter of 2022, compared with 19 million in the prior quarter and 5 million in the prior year period. The segment has performed well under challenging conditions. Sales volumes decreased 6% sequentially and 8% compared to the prior year period, primarily due to lower construction demand within our color pigments business. We have seen similar regional demand trends in performance additives as with TO2. However, the business has been more resilient to the macro environment. Energy and raw material cost inflation continued to be a headwind during the third quarter and were partially offset by higher average selling price of 3% in local currency sequentially. Notwithstanding a healthy demand environment for our functional additives products, we expect a significant decline in sales volumes as we have temporarily suspended production at our Duisburg, Germany, TO2 and functional additive facility in response to lower TO2 demand and high energy costs. We continue our monthly pricing reviews of customers to mitigate the ongoing impact of energy and raw material cost inflation. This morning, we announced that we have signed a definitive agreement to divest the iron oxide business from within-color pigments to Cafe Industries for an enterprise value of 140 million. We believe that Cafe will be an excellent long-term strategic owner of the business going forward. The transaction is expected to close by the end of the first quarter in 2023. The iron oxide business represents the majority of the color pigments business. We will continue to own and operate the ultramarine blue and dryers elements of the business. In the near term, This transaction will bolster our liquidity and allow us to focus on our strategic assets. Turning to slide six, we are implementing cost austerity measures across our business in response to the challenging business environment. By the end of 2024, we expect actions to be in place to deliver the full cost reduction program benefits to deliver 50 million EBITDA compared to 2022. These actions, which permanently reduce costs, include reduction of SG&A headcounts and discretionary spend, lower manufacturing fixed costs, and manufacturing improvement. We expect cash costs to deliver the program of approximately 30 million spread over the next couple of years. I will now pass the call over to Kurt to discuss our adjusted EBITDA averages.