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Good day, and welcome to the Venator third-quarter earnings call. [Operator instructions] Please note this event is being recorded. I would like to turn the conference over to Jeffrey Schnell, director of investor relations. Please go ahead.

Thank you, Francesca, and good morning, everybody. I am Jeffrey Schnell, director of investor relations for Venator Materials. Welcome to Venator's third-quarter 2019 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 2019 via press release and posted the release and accompanying slides to our website at During this call, we may make statements about projections or expectations for the future. All such statements are forward-looking, and while they reflect our current expectations, they involve risks and uncertainties that 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 and 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.

Thanks, Jeff. And good morning everyone. Let's begin on Slide 3. The macroeconomic challenges and subsequent uncertainty experienced in the first-half 2019 persisted in the third quarter.

Notwithstanding these headwinds, most of which are beyond our control, Venator delivered $50 million of adjusted EBITDA, and $0.08 of adjusted diluted earnings per share. Turning to Slide 4 and our titanium dioxide segment. In the third quarter, our titanium dioxide segment generated $51 million of adjusted EBITDA, compared to $75 million in the third quarter of 2018. The average TiO2 selling price declined 7% in local currency compared to the prior year, but remained stable on a sequential basis for the second successive quarter.

This was primarily a result of managing our supply network and our tailored customer approach to reduce price volatility. On a year-over-year basis, prices for functional TiO2 products were most impacted in Europe, which was the highest-priced region in the prior-year period. As expected, prices in Europe shifted downwards to that of the more stable North American region, and we exited the third quarter with average prices in Europe below that of the North American region on a U.S. dollar basis.

Prices in Asia also moved lower compared to the third quarter of 2018, driven by weaker demand primarily in China. North American prices remained the most stable. Globally, average TiO2 prices remained stable compared to the prior quarter. Specialty TiO2 pricing has remained more resilient when compared to functional TiO2 products.

In the third quarter, pricing was stable compared to the prior-year period amid modest destocking in certain products related to trade uncertainty. Nonetheless, the relative demand stability and pricing dynamics underscore our commitment to transferring production from Pori to other sites in our network, ultimately strengthening our leadership position in these higher-value applications. Titanium dioxide volumes increased 12% compared to the prior-year period and broadly across applications and geographies. The increase was primarily a result of increased sales of new differentiated products, improved availability of certain products and high demand compared to the prior period which was significantly impacted by customer inventory reductions.

TiO2 volumes declined compared to the prior quarter at the high end of our average seasonal range, and broadly across end-use applications, including coatings, paper and plastics. The regional trends impacting the TiO2 industry are well-defined. Here are some additional comments by region. As mentioned on prior earnings calls, in North America, we sell our TiO2 primarily to smaller customers and into nonslurry applications.

Demand normalized in the third quarter of 2019 and was supplemented by increased sales of new differentiated products. The average TiO2 selling price in North America was stable in the third quarter compared to the prior quarter, which reflects our sold-out position at our manufacturing sites in Lake Charles, and our tailored customer approach aimed at reducing price volatility. Asia remains a significant consumer of TiO2 and an important global market for the industry, and is highly fragmented. Demand in China remained weak in the third quarter, though demand in Asia excluding China was comparatively stable.

TiO2 prices in Asia were stable sequentially, reflecting our differentiated market position in the region. Our exposure to Asia is comparable in size to our position in North America, and limited to our manufacturing facility in Malaysia and supplemented by exports of specialty and differentiated TiO2 to the region. Europe is our largest market for TiO2 and accounts for approximately half of the segment's revenue. Compared to the prior-year period, volumes in Europe increased modestly, benefiting from higher sales of new differentiated products and improved demand compared to the third quarter of 2018 when customers reduced their inventory levels.

As mentioned earlier in my remarks, the average TiO2 price in the European market declined compared to the prior-year quarter, but remained stable on a sequential basis. In the third quarter, we incurred higher variable cost inflation, including higher raw material costs, which were mostly from high-grade ores and a negative contribution with lower fixed cost absorption as we manage our production network. These headwinds were offset by a $6 million nonrecurring benefit from a change in plant utilization rates, which increased our overhead absorption and corresponding inventory valuation, and a $5 million benefit from our Business Improvement Program. Notwithstanding near-term pressures and expected seasonal headwinds, longer-term TiO2 industry fundamentals remain favorable.

We are focused on enhancing our specialty TiO2 portfolio and delivering the benefits of our Business Improvement Program, improving our competitiveness throughout the TiO2 cycle. I will provide more comments on the outlook shortly. Turning to Slide 5, and performance additives. Revenues declined 10% compared to the prior-year period driven by an 8% decline in volumes, a 2% unfavorable impact from foreign currency and a 2% headwind from mix, partially offset by a 2% increase in the average selling price.

I will provide some additional comments on the three main businesses within performance additives. Color pigments volumes were primarily impacted by lower demand for products into construction-related applications in North America and lower plastics demand. The impact from lower volumes was offset by higher average prices which primarily reflects the partial pass-through of tariffs related to current U.S. and China trade policies.

We benefited in the quarter from our prior self-help actions and expect to continue to benefit from these ongoing and aggressive cost and operational enhancement efforts in 2020. Timber treatment volumes declined compared to the prior-year period, primarily due to lower sales to a large customer as a result of a lost tender in the third quarter of 2018. The average selling price increased slightly in the third quarter due to the mix of sales within the business. In the fourth quarter, we will lap this year-over-year volumetric headwind and the impact will be substantially muted.

Functional additive volumes were negatively impacted by weaker than expected demand for automotive and electronics applications due to the continuation of customer destocking in these channels. We expect weaker demand conditions to continue. The performance additives segment generated $13 million of adjusted EBITDA in the quarter, up $1 million compared to the prior-year quarter and a sequential decline of $3 million. The muted year-over-year growth in EBITDA was primarily attributable to higher pricing and lower costs, including the benefits from our Business Improvement Program and offset by weaker than expected sales volumes resulting from the headwinds I described earlier, and principally due to lower volumes in our functional additives business.

In the third quarter we had a $2 million nonrecurring benefit to EBITDA from a change in plant utilization rates which increased our overhead absorption. Over the past two years, we have taken meaningful steps to streamline our cost structure within each of the businesses. In light of more severe market forces, especially within automotive and electronics end-uses, we are tempering our estimate for segment profitability. We now expect performance additives EBITDA in 2019 will be less than the $62 million EBITDA generated in 2018.

We conducted a comprehensive review of color pigments business in the third quarter. As a result, we have identified meaningful self-help measures that are intended to improve the profitability of the business over the next three years by approximately $10 million for a similar amount of investment. The improvements we have identified are a combination of cost savings and efficiencies and are incremental to 2019 expected results. We believe these actions will augment the competitiveness and cash generation of the color pigments business.

We believe there are synergies of a complimentary portfolio of offerings to provide our global and diversified customers. The color pigments business has attractive organic and inorganic growth prospects and actions we have taken, and plan to take, will further optimize this cost structure and reinforce this free cash flow generation. In the interim, we continue to engage with those parties who have expressed interest in acquiring the business. To enhance shareholder value, we retained Citi as a financial advisor to explore potential sale of the color pigments business.

The process is ongoing, and therefore we will be not be providing more commentary on the matter. With that, I will now pass the call over to Kurt to discuss our financials. I will then return to provide comments on the outlook. Kurt?

Thanks, Simon. Let's turn to Slide 6 to discuss our Business Improvement Program. We continue to be intensely focused on strengthening our business and improving our cash flow. We commenced our 2019 Business Improvement Program in the fourth quarter of 2018, following the successful completion of our prior program.

The cost and operational improvement program is designed to generate $40 million of annual EBITDA benefits through an improvement in TiO2 manufacturing efficiencies, a reduction in SG&A and manufacturing and other operational improvements in the performance additives segment. We intend to complete all the actions necessary to deliver on our target by the end of 2020, ending the year at the full run rate level. In the third quarter of 2019, we captured an additional $8 million EBITDA benefit from our 2019 Business Improvement Program. Year to date, we have realized accumulated benefit of $15 million.

We have accelerated the capture in 2019 and currently expect to generate more in the fourth quarter, well ahead of our original forecast of more than $10 million for the full-year 2019. We are pleased with the execution to-date and are confident in our ability to deliver the targeted benefits as promised. Let's turn to Slide 7. In the third quarter, total adjusted EBITDA declined $27 million compared to the prior-year period.

Most of the decline was attributable to the lower average selling price in our titanium dioxide segment, higher raw material costs and lower fixed cost absorption, partially offset by an $8 million nonrecurring EBITDA benefit resulting from a change in plant utilization rates, which increased our overhead absorption and corresponding inventory valuation in the third quarter of 2019. Notwithstanding lower volumes in performance additives for the reasons Simon described earlier, sales volumes were a net positive as a result of increased sales of new differentiated TiO2 products, improved production at certain facilities and higher demand compared to the prior-year period. The benefits from our Business Improvement Program were also manifest as we continue to deliver ahead of target on our aggressive improvement initiatives. Compared to the prior quarter, total adjusted EBITDA declined by $11 million.

Seasonally lower sales volumes in TiO2 and performance additives were the largest contributor to the sequential decline. Pricing was stable and raw materials were a modest headwind, though more than offset by an $8 million nonrecurring benefit due to change in plant utilization rates, which increased our overhead absorption and corresponding inventory valuation. Additionally, we continue to benefit from our ongoing Business Improvement Program which offset a modest headwind from FX and other. Turning to Slide 8, and our capital resources.

At the end of the third quarter net debt totaled $713 million, and our net leverage ratio was approximately 3.3 times our trailing 12 months adjusted EBITDA. Total liquidity was approximately $325 million at the end of the quarter, consisting of $40 million in cash and $285 million of un-drawn availability under our asset-based revolving lending facility. We do not have any significant debt maturities until 2024. We continue to enjoy relatively low cash tax rates.

This is primarily a function of the countries where income is generated and the $1.1 billion in net operating losses from which we continue to benefit. Our tax expense is significantly affected by the mix of income and losses in tax jurisdictions in which we operate and valuation allowances in certain jurisdictions. Beginning in the second quarter of 2019, we applied a normalized adjusted effective tax rate which better reflects the current weighted average tax rate applicable under the various jurisdictions in which we operate. Therefore, we expect our 2019 adjusted effective tax rate to be approximately 35%, which is higher than our long-term expected adjusted effective tax rate of 15% to 20%.

Our 2019 cash taxes will be less than $10 million and our long-term cash tax rate guidance of 10% to 15% remains in effect. Total free cash flow in the third quarter was a use of $5 million and does not include $15 million of proceeds from the opportunistic monetization of three cross-currency interest rate swaps that were in the money. We concurrently entered into three new cross-currency interest rate contracts, converting $200 million of our U.S. denominated debt into euros.

These new contracts have the effect of reducing our weighted average cost of debt and utilizes more effectively our euro-denominated profits. Additionally, annual interest savings are approximately $4 million per year or approximately $20 million through maturity in July 2024 compared to an un-hedged position. Our updated outlook for 2019 and preliminary view of cash uses for 2020 are as follows. Our forecast for capex in 2019 has been reduced to approximately $115 million and does not include approximately $40 million of Pori-related GAAP capex.

As previously stated, we will remain vigilant with our capex budget without compromising the integrity or operability of our assets. Our preliminary outlook for capital expenditures in 2020 is less than $100 million excluding Pori-related capex, and we can reduce this outflow further should market conditions warrant. The outlook for cash interest is unchanged at approximately $45 million and cash taxes in 2019 are forecast to be less than $10 million. For 2020, we expect cash interest to be between $40 million to $45 million.

We have reduced the 2019 estimate for cash restructuring payment to $25 million to $30 million. In 2020, we expect this to be approximately $20 million. As Simon mentioned, we have identified $10 million of self-help in our color pigments business. We anticipate the benefit of this new program to be cash-neutral in 2020 due to our working capital release, which will offset the costs within that year.

Cash pension and other expenses in 2019 are unchanged and are expected to be $60 million to $70 million. Working capital was a modest source of cash in the third quarter of 2019. Based on the current TiO2 industry outlook, we expect to deliver a working capital reduction of $15 million to $30 million for the full year of 2019 compared to 2018. The change in our working capital forecast is a result of the change in plant utilization rates which increased our overhead absorption and corresponding inventory valuation.

We recorded an EBITDA benefit in our third quarter 2019 and therefore on a net basis, the impact on cash is unchanged. We will provide an update on expected change in working capital for 2020 on our fourth-quarter call. Finally, our Pori-related expenses are expected to total $65 million to $70 million in 2019, which includes approximately $40 million of capital expenditures. We have spent $55 million thus far in 2019.

The cash spend at Pori is dramatically slowing down and we expect Pori-related expenses to be less than $30 million in 2020. We recognize the importance of returning to positive free cash flow and are intensely focused on reducing our cash uses in the near term. We expect to provide an update to these preliminary 2020 cash uses following our fourth-quarter earnings call early next year. With that, I'll turn I'll turn it back to Simon for concluding remarks.

Thank you, Kurt. I'd like to provide some comments on the outlook before I summarize and open the call for questions. So turning to Slide 9, in the fourth quarter, we expect the challenging economic backdrop to continue. Volumes are expected to reflect historical seasonal patterns and are compared to a weak fourth quarter of 2018.

Additionally, we expect some pressure on margins as we contend with higher raw material costs and an incremental headwind from lower fixed cost absorption due to plant maintenance and reduced operating rates consistent with managing our production and inventories. Longer term TiO2 industry fundamentals remain favorable. TiO2 industry inventory levels are normalized and capacity additions are well understood and in line with normalized industry growth rates. Venator continues to be focused on maximizing value to shareholders through the following.

We are committed to our tailored customer approach by which we actively manage our production network and inventories along with the implementation of a more diverse range of customer agreements. The net effect reduces price and volume volatility. Evidence can be seen in our more stable 2019 pricing, and higher volumes due to increased sales of innovative new TiO2 products. We are on track with the phased transfer of our specialty TiO2 technology from Pori.

These actions will strengthen our leadership position in these higher value and more stable applications. We have accelerated the delivery of our Business Improvement Program, evidenced by having delivered $15 million of EBITDA improvements year to date. We are intensely focused on delivering the remaining costs and operational efficiencies as promised. We have also identified $10 million of incremental EBITDA benefits to our color pigments business to improve the profitability of the business over the next `years.

We are intensely focused on reducing our cash usage and generating positive free cash flow. Compared to our prior expectations, we have taken meaningful steps to reduce our 2019 expected cash outflows evidenced by a reduction in capex. Our preliminary outlook for 2020 signals a significant reduction in cash usage compared to 2019, and we remain focused on further reducing this spend. We are fully committed to maximizing shareholder value through active portfolio optimization, which in the near term includes exploring the potential sale of our color pigments business.

With that, we thank you for your continued interest in Venator. I would now like to open the call for questions.

[Operator instructions] The first question is from David Begleiter with Deutsche Bank. Please go ahead.

Thank you. Good morning. Simon, first on color pigments, why this business and not functional additives and timber treatment? What are they -- what makes them more strategic for you longer term than color pigments?

Well, I think it's important to note, David, that on previous calls we've always said that we are open to routes that create shareholder value. We've often tried to characterize the three main components of our additives business. And let's recap, color pigments, a range of smaller factories somewhat allied to our main TiO2 offering with their products, namely blue, red, yellow, black pigment. Second, the timber treatment franchise, which is separate from our core TiO2 franchise, both in terms of strategy and in also in terms of practicality very much a stand-alone U.S.

denominated business. And finally, our performance additives franchise which is -- couldn't be more different than timber in that it's highly integrated into our Duisburg, Germany plant. So the way we would see it is that functional additives are very much aligned to our operations and to our TiO2 offer, so very much part and parcel of our core business. Frankly, our timber business where we see interest and inquiries, as we've mentioned on our color pigments, we may well consider that.

We were open to whatever would create shareholder value. But we're talking specifically at this time about our color pigments business. That's the business that we've -- has been the subject of a range of inquiries and we've decided to run a formal process there and match that up against what we now believe we can do to improve our business than the $10 million incremental improvement program which we mentioned in our prepared remarks.

Very helpful. And just lastly, given some stabilization in TiO2 pricing as we speak right now, what's your outlook for TiO2 prices in 2020?

Well, I think -- let's start with the stabilization piece there, David. I mean if we look back we had -- this industry had a demand shock in the second half of last year to the tune of around 25% on demand. That's nothing like we've seen in this industry other than in 2008 and '09. In this particular case, of course this tough challenging demand profile has continued pretty much all through 2019.

So I think most people can see it's a very challenging demand period these past 18 months. During this period, we have remained absolutely committed to the stabilization program, the tailored customer approach, the two components, the range of contracted activities and the moderation and use of our circuit. Despite raw material costs going up in the period, despite suffering fixed cost absorption, we stuck at it and we have seen yet another sequential price flat in our TiO2 business. And I hasten to add our inventories are at a very manageable and appropriate level, just around the 50-day mark.

So I think it's very important to note that we're very committed to the stabilization, we see a similarly committed on a go-forward basis. In 2020, it's too early to call pricing specifically. We would acknowledge there could be a range of outcomes in 2020 as we go through this NDA budget cycle. Of course, the tough macro could continue and even darken of course on the downside.

On the other side, we have succeeded in Venator in putting a floor at a higher level on our TiO2 prices. We have set our inventories at a good level. And I believe that there is very limited stock right through the chain now, across the industry and across our customer-base. And any fresh glimmer of demand here, which you can make a positive case, will see a pull-through in demand.

And at that point, with a deceleration of raw material increases, I think we're back into opening up margin territory. So wouldn't want to call it in terms of timing of course, that's what we're after, it does need some improvement in demand. But we're very well set.

Hey, guys. I was wondering if you could just provide some more detail around inventory markup. Utilization rates have moved pretty material over the past year, but this is the first time you guys have kind of called it out as nonrecurring. Just wondering if it's the size of the adjustment or if that's kind of a make-up adjustment for multiple quarters, just trying to think about how it fits in with kind of a forward look here?

Yes, Josh, this is Kurt. Thanks for asking the question. Perhaps we can provide a little bit more clarity on that. We do continually look at current and expected utilization rate and those assumptions feed into our standard costing outputs.

And as we have done that here recently, there has been a material enough change that we have updated those assumptions for our standard costing. And because of the size of the change, that's why we called it out. So this is not something that we would necessarily expect to reverse. It's baked into our standard costing going forward.

And any future changes in the assumptions I would expect to be pretty minimal and would not expect to highlight the way we had tried to provide transparency for you during this quarter because of the magnitude of it.

OK. So looking at 4Q, if rates remain relatively high, I mean you'll have a seasonal decline, you still expect that to be kind of baked into the normal cost of goods at this point, right?

OK. And just on operating costs, if you could kind of give an outlook on a forward basis into 4Q and perhaps into 2020, just curious of your view kind of incrementally what you think raw materials and perhaps other costs look like that we should think about in a delta?

Yes, this is Simon. Let's take that question a couple of -- let's talk about 4Q. We called out very early in the year a $40 million headwind on raws. We spoke a number of times about the preponderance of that being related to our largest spend item, namely feedstocks and ores, roughly three-quarters of that.

We said that about two-thirds of that headwind would occur in the front half, and so we get a deceleration effect. So that should help you kind of dimension what we're talking around in terms of single millions -- singular millions in the fourth quarter. Turning to 2020, we're not willing to comment yet on the direct cost outlook. We don't see fundamentals that points to improved direct cost increases.

We've seen traditionally a lag between raw materials and TiO2 prices. That has come down, it decelerates as I've just mentioned. And we don't see any fundamental reason in this supply/demand fundamental that we should be onboarding raws next year. But frankly we still have to go through a number of discussions and negotiations to be able to comment more fulsomely and definitively on that.

The only other area I'd pick out on cost is in any business of this type continues to have to combine inflationary and cost of living type incurrence. Our response to that is very much about taking matters in our own hands. The BIP is now tracking $15 million, three-quarters in. That's ahead of the target in terms of acceleration and on pace.

And we've dug out -- we're digging another $10 million in the color pigments area. So that's our prime response to the fixed costs part of our structures. Hope that's helpful.

Good morning. Question -- first question is around Pori. I want to understand better the cash outflow 2019 and 2020 kind of in two buckets. So bucket one, just the cash cost to shut the plant down or to remediate it.

And bucket two would be the cost incurred in moving some of that finishing equipment to your other plants. And then when should we expect that to actually start adding to EBITDA?

Duffy, let me go ahead and tackle that. So what we have identified, if you reference Slide 8 in our presentation materials, let's just break out here the difference of where we see Pori-related cash items. So you have a Pori cash expenses line there that is $65 million to $70 million estimate for the full year of 2019. That has included in that $40 million of capex associated with the wind-down of the project that we had.

The bulk of that we spent early in 2019. And now as we go forward, we are spending on the exit of Pori itself. Now as it relates to the transfer of technology, embedded in our capital expenditure row up above in the $115 million full-year 2019 number, there is approximately $15 million of capex included there to accommodate for the investment in the rest of our manufacturing network to produce the specialty products that have been moved out of Pori. Now as we go into 2020, we have successfully transferred many of the product grades out of Pori into the existing network.

That would include product grades such as specialty inks, cosmetics, fibers. And so we will see those benefits in 2020. It is worth noting, of course, that the economics that we have in 2020 and right now, they are a little bit different than what we had certainly back in 2018 when we were originally planning on moving that product out to the rest of the network. But the bulk of the pound have been moved out, we'll see that benefit in 2020.

OK. And then just a second question on TiO2 volumes, up 12% for you guys. Can you at least directionally talk about did most of that improvement come in functional, differentiated or specialty?

Yes, I'll take that up, Duffy. So just remember the context here as 2018 was quite a disappointing year, the industry level, demand being down globally by let's say about 6%. So tough year in 2018 coming into 2019. Part of our response along with the value stabilization measures is introduction to innovative new products.

If you think about step up that you've talked about there, I would think about half of that being in the form of new products in the differentiated plastics and coating segments, both chloride and sulfate. And in terms of the rest, we are a European-centered revenue base. So you can pro rata the rest mainly would be a European drill. But it's not fundamentally driven by specialties, that number.

Yes. Thanks for taking my question, guys. With regard to the color pigments business, can you just update us on what the trailing 12 month EBITDA was from that business?

So John, this is Kurt. We haven't broken that out in our public disclosure. However, what we have said is that within the performance additives segment, there are three business units; color pigments, functional additives and timber treatment. Each one of those represent approximately one-third of the total segment EBITDA.

Got it. OK. And then I guess if you do go down the route of monetizing that asset, which it sounds like is certainly possible, would we be correct in assuming that you can protect those proceeds with the help of your NOLs? Is that correct?

Yes, that's absolutely correct. So we see very minimal tax leakage should we end up with a deal where we end up monetizing the business itself. And I would also say that that's also in part because we have a pretty high tax basis for color pigments.

Sure. Sure. No, that makes sense. And then I guess last question, just I know you're still kind of in the throes of the Tronox lawsuit.

I guess if you can give us any update on the timing there, any road markers that we should be aware of, that'd be helpful.

Yes, this is Simon here. So let's recap. From our perspective, the $75 million breakthrough remains due and payable from Tronox in full which is under the exclusivity agreement with Venator. So despite the Tronox excuses we heard for the failure to pay, we continue to believe we acted in good faith at all times to reach that definitive agreement to purchase the Ashtabula site.

So we believe any counterclaims are unfounded. What we can say too that is the courts now set a trial date for March 2021, and we look forward to pressing our claim at that time. And that should give you a kind of like sense of the runway there.

Yes. Good morning. I was just wondering what your interest level is in pulling forward in debottlenecking opportunities at Lake Charles?

Yes, look, I mean, from our standpoint, we would always take a look at anything that made sense from a debottlenecking standpoint. And we would consider that with our partner at the time. But I think it's clear to us that we're not talking about here is expansions or capacity of any scale because economics don't justify. But yes, we'd have a look at Lake Charles or indeed any of our plants where we felt there was a case for debottlenecking or what we would call capacity creep.

And Simon, can you talk a little bit about your key customers buy-in market? And which ones do you have some visibility into their TiO2 inventory levels?

Yes, I think it's -- we are not participatory in slurry in the United States as most people know and a relatively high proportion of distribution occurs via that route in the United States. So we believe -- continue to believe that we've got quite good visibility even though we're not in it for the amount of pounds that are stuck in inventory in the U.S., which I would say is a pro rata relatively low. But the feedback from our customers is that their levels of inventory are normal to low as ours are in fact. In Europe, of course, we do have a much better visibility because of our position and -- position of scale with customers and we have a solid transportation delivery method in [Inaudible] in Europe which we participate in, which we pioneered a number of years back.

And in that area where products similarly go into fixed silos, there is limited ability to build inventory. So I think what we're saying here is in the western world here, in particularly North America and Europe, we would contend that we've got relatively good visibility and that the levels are normal to low.

Hi, this is Anthony Walker on for Bob. On the pigment segment, you highlighted kind of $10 million in cost optimization opportunities. What's the timeline to achieve those benefits and how shall we think about those flowing through the P&L potentially next year?

Yes, so I'll take that. So the way I would think about this is $10 million, the bulk of which will be delivered within the first two years. That's how I would think about that. And phase it in a way that the cash outflow, the restructurings or any monies we spend get taken care of along the way on a [Inaudible] basis.

OK, that's helpful. And then on the volume side for TiO2, can you just call it any market share shifts that you may have experienced by region during the quarter? And maybe just some additional color on the regional variations and price you've experienced?

Yes, let's take the share things first. I mean obviously from our point of view, I mentioned earlier in the call that we remain committed to our tailored customer approach. So what we are noting here, and you'll have seen in this past third quarter, we had a high end of the range seasonal decline in volumes. That was as we expected to achieve.

We do not believe we gained share, we do not believe we lost share. We expect to see that again in the fourth quarter. We expect to see that type of dynamic. So we believe that net of some limited new product introductions, which clearly enhance our specialized expert and differentiated approach with customers, we are kind of net-neutral on market share.

We do note of course that this past third quarter, there has been a ramp up in competitive activity in some segments, notably in plastics. So despite what others may say in that segment, from our perspective in the third quarter, we have neither gained nor lost and we put that down to the fact that we compete always at the highest technical end of the customer requirement. We see nothing of note in the coatings or other segments. By geography, I think that the tail of the year has been largely unchanged, U.S.

being the best and the most stable. Europe has been stable, but a very nominal growth to flat type of environment. In Asia that we've seen in this third quarter a softening and some downward pressures coming in as we see a little bit more of a ramp up of Chinese exports. I would remind everyone still though that Chinese exports year to date at the end of the third quarter are still only and slightly ahead of where they were this time in 2018.

And in fact, there's been significant reductions in both Europe and North America year to date. So those are the kind of dynamics I would pick out by region. Just to add that our specialty business, we've seen some good robustness in terms of demand and pricing on a year-on-year basis as we would expect to see.

Hi, this is Steve Haynes on for Vincent. Last quarter you guys made a comment about kind of underlying demand being maybe up in the 2% to 3% range in 2020. You called out ongoing macro issues. Really are there any updates to that view, or should we still be thinking about it in that kind of range? And would you expect to kind of outperform or underperform that?

Well, look, I think as we said that we are still contemplating a range of outcomes on a go forward 2020 basis. We haven't finalized our position as we come through the year and budgeting cycle. Clearly, the macros have been very challenging this year and others will take a view on whether that picture is set to brighten or whether that picture is set to darken. And that will be a driving factor on final outcomes.

What we would say though is given the fact we've been 15-18 months of frankly in this segment has been a pretty brutal recession from a demand point of view. We are -- believe that we will see some growth normalizing in line with GDP in 2020. So that's probably about as much as we can say at the moment, other than as I mentioned earlier, we think we're well set. We think the chain, all destockings out, people are running a low -- lower to normal inventories.

We've got a lower inventory right now than we had this time last year. We've managed the inventory all the way through. And the slightest improvement in demand will lead to a pull-through in this segment from which we'll benefit.

Hi. Good morning. It's Petrie on for Peter. So a competitor announced that they're introducing chloride TiO2 grades for specialty end-markets like inks and [Inaudible] traditionally supplied by sulfate like yourselves.

So what do you think that impact is? How fast do you think those customers will switch? And then to tie that back to the Pori specialty grade volume transfer, what's kind of the EBITDA impact from the $30 million that you targeted of uplift in 2020 back in '18?

Yes, so thanks for the question. Yes, frankly we're not surprised. After the Pori incident of course we saw one or two other producers, particularly with sulfate technology, enter into the ink space. We've said for a long time that the specialty markets are very attractive for a number of reasons around robustness; switching costs, so forth; high price points.

So it's not really a surprise that others would see those markets as attractive. Now I must add to that of course specialty and their specialty. I think over time we've tried to explain to people that these tend to be relatively small in terms of volume, these aren't subset. They do have different characteristics.

You've got fibers, you've got cosmetics, pharmaceuticals, active materials, specialty inks and so forth. It's probably a bit early for us to comment on the specific case you outline there, but frankly we believe that after many decades in these segments that customers are looking for clear, high level of trust in products; integrity of the products, which need to stand the test of time. We spent many years building up relationships with these customers. These customers are conservative.

The cost of getting it wrong for these customers are extremely high, far -- so far greater than in the functional areas and they will look at these products very carefully. So in terms of timing, I think it will probably be potentially depending on how specialized the specialty product is, can potentially be very slow. As it relates to Pori, I don't think it makes any difference. We have transferred, as Kurt mentioned, the majority of our inks-based technology out of Pori already.

That's one of the earlier phased transfers. And we look forward to improving our position in that segment in 2020 and beyond. So from our point of view, it doesn't make any difference. Just to say that we have a very active pipeline of products here.

We don't spend much time on these calls talking about it, but if we did, it will be talking about range of chloride and sulfate products we've launched this year and plan to launch next. It's just part of life as we know it when you're trying to target products into the [Inaudible] of the market, so we were not surprised that others would see interest in those by the market.

Eric, let me just add to what Simon has said. In the original announcement in September of 2018, we indicated a $30 million EBITDA benefit for a $150 million capital expenditure investment for the transfer of technology. In early -- earlier this year, we came back and said that $60 million of that capital investment, $60 million of the $150 million, we were not going to do and that would reduce the EBITDA -- annual EBITDA benefit by $15 million based on current economic conditions. We could always come back for it later on.

So the current -- our current view is you spend $90 million in order to get this $15 million. And so we have completed most of that. However, we do need to recognize that we are in an economic environment which is not as robust as what we would consider mid-cycle.

Appreciate the color. For my follow-up question, I wanted to focus in a little bit on Asia trends. What do you think caused the weakness in the quarter? Is it just macro slowing? Or do you see inventory destocking at distributors? And secondly, what have you heard from Lomon Billions ramp up with their chloride production?

Well, the second part we'll take first I think, because we're not here to talk about competitors' capabilities or plans. I think our position on that has been pretty well made for these past couple of years that that technology tends to take longer, and produces a lower outcome than desired. It's a very tough technology to master. So what we had heard was only related to what was in the public domain, which I think others have played to us around a number of delays -- planned delays to the capacity.

As far as the first part of your question, I think it really comes back to the macro in China itself. Clearly some gloominess in China, within China, and attempts with the tariffs, etc. And the impact on the customers that use TiO2 rather than the TiO2 people themselves. It's those people that see the gloom.

And that has increased as we've gone through the year, notably in the third quarter. It's led to greater attempts to shift Chinese product into predominantly the Asian region and that has put some downward pressure on pricing. And we have seen some gaps open up between some Chinese exports on local Asian prices. That's how I would characterize it.

And again, it's a clear counterpoint to the last time this industry had a large demand shot back in '08, '09, where China went largely unscathed through that downturn and the demand rebounded very quickly. I mean, here we're seeing a decade later China very much at the center of this reduction in demand, because the western world's been largely a low growth rates for a while and it's China's that's come down from this age to six to fours. However, you believe about GDP glide down these past couple of years. So it's really related to that I would say.

Morning, Simon. Are there any business synergies between color pigments and the other performance additives businesses? And I also think you had filed a lawsuit some time ago against Rockwood regarding some failed technology in color pigments. Where does that stand today?

Yes, so I think that the second part we'll take first. That lawsuit was filed by Huntsman now against Albemarle. So that suit did not come through with the separation of the Venator business from Huntsman. And that question is best answered by Huntsman representatives I would suggest.

The first part of the question, frankly there are some applications where we sell functional additives and color pigments together, but they are very small in nature. The synergy tends to come more with color pigments and TiO2, or functional additives and TiO2. So the answer to your question is within the performance additives set of businesses, there isn't a great synergy with the color and the other constituent part.

And on the cost reductions or the EBITDA improvement, the $10 million that you see in color pigments over three years, I think you've done a lot of self-help already in that business, lots of business improvement programs over the last several years. What are the opportunities that still remain in color pigments?

Look, we believe for us, it was important to bottom out what the opportunity was. We put a very comprehensive exercise together in the third quarter of this year. And that's the opportunity for us. Now of course, that could be a different opportunity for someone else depending on their own strategy and position.

I think these past years, we were targeting around $15 million of improvement in over $15 million of color, we've come up with $10 million now. So that should give you a kind of flavor for the fact that of course, it doesn't get easier as we go forward, it gets harder. And that's a factor to bear in mind. We think we probably get that $10 million -- most of that $10 million in the first 2 years.

The reality is in this segment is that we've had market effects these past years which have eroded a lot of these self-help benefits. But we shouldn't lose sight of the fact that right now when we look at the performance additives performance, it really is the functional additives that's holding back the overall EBITDA result, where we have this continued problem in predominantly FAD with automotive and electrical, and it's been assets been holding us back rather than the color pigments franchise.

And regarding your capex reduction, what projects are being pushed out, spending less on capex in 2019?

So we've had a hard look at the phasing of the capex in 2019. You should see some of that reduction as phasing and more -- some of those choice issues that you allude to will be more come into our 2020 bucket, where we've highlighted that we won't be spending more than $100 million. And in fact, we do have, should we choose, the ability to reduce that. And at that time, that would be the time to answer that question.

Hi, this is Adam Bubes on for Laurence Alexander. I was just wondering when we think about performance additives volumes down 8%, which geographies are driving volume weakness in particular and were any showing strength?

Yes, look, I think in performance additives, that business is biased to both Europe and North America. And so I would say that in the construction of plastics markets, which we specifically picked out for color, that would be Europe and North America. For functional additives, I think it's Europe and Asia where we're just seeing some losses in the automotive and electrical businesses.

OK. And then I was wondering can you help us think about capital deployment in a scenario where the color pigments business is sold?

Yes, sure. This is Kurt. Let me take that. And so you need to understand that our primary desire is to delever the balance sheet if we do sell the business.

But of course, we will evaluate options at that point in time that we do receive proceeds. And we'll weigh optionality specifically within the context of the TiO2 cycle as well as the broader macroeconomic environment, but it's certainly our desire to delever here and it is quite possible that we would use a portion of those proceeds to do so.

A question around the sort of industry's pricing stabilization strategy. I don't know whether you can sort of outrightly address this, but one of the questions that I keep getting from investors and one of the fears out there is that one of the large producers within what is a relatively consolidated TiO2 space walks away from the pricing stabilization strategy. And if that happens, all of a sudden there is all of this incremental volume that just gets pushed into the marketplace. I mean -- and obviously ruins the whole sort of supply/demand story.

So Hassan, I recognize the dynamic and the question and the kind of like concern there that we've heard similar from people. This is important as the thing for me to continue to state that we will only speak on behalf of Venator. We can't, and won't, and shouldn't speak on behalf of industry or competitor. What I can tell you though is what we, Venator, believe, and what we are doing.

Now I think we believe in stabilization, and the tailored customer approach. We've been consistently doing it, and we believe that our inventories of volumes and our prices all point to the fact that we have been successful. We have done it at a cost, we have taken pain, we have taken fixed costs absorption pain through pulling back our network. We have had to onboard a significant this year $40 million of direct cost, extra cost.

So look, it has [Inaudible] cost, but we are committed to we think it's the right thing. We have noted, of course, that others have done this type of thing in their own way. And that's for them to talk to. I -- it's clear to me though that the Venator position is we believe in it, we're committed to it, we're doing it.

We don't see ourselves stepping away from it. And it's been successful at having prices which are way higher than anything we saw in previous drops. And from our perspective, we would probably say that others must be doing something because I can't see anyone on their own could just stay outside the market. The markets -- the market is very competitive.

We continue to see prices go up and down in various regions, currently some pressures in Asia. But that's the way we are approaching it, particularly in our western markets where we have more control, bigger position and influence to actually take effective steps, where we are in very tactical, a small part of the market, it's less easy to do that. But that's our belief.

Understood. Very helpful. Now as a follow-up on the Chinese side of things, over the last couple of years we've seen some ebbs and flows in terms of environmental regulations, environmental inspections and the like. And it just seems that over the last couple of months things have gotten, at least inspections-wise, a little stricter again.

We haven't heard of any fresh new curtailments. We have heard of the pressures and we have noted some commentary around production volumes being pulled back within the third quarter in China. I don't expect the foot is going to come off the pedal anytime soon in China as it relates to sustainability measures. There's still a long way to go.

We said many times that the capacity build rates have clearly slowed and are changing. But more importantly, cost structures are rising for sophisticated or the larger Chinese producers. I think the pattern will continue. I just think the intensity of it will ebb and flow, but I don't see it actually going away.

Osha Titanium Dioxide

This concludes our question-and-answer session. I would like to turn the conference back over to Simon Turner for any closing remarks.

Thank you very much. Just to say to everyone, thank you for your interest. We appreciate that. We understand that we don't get to address all the questions.

Please reach out to Jeff with any additional questions you may have. And we look forward to engaging with you throughout the quarter on the road and in the fourth quarter. So thank you very much for interest in Venator.

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