Good morning. My name is Kim and I will be your conference operator today. At this time, I would like to welcome everyone to The Chemours Company Fourth Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

[Operator Instructions] Thank you. Jonathan Lock, Vice President of Corporate Development and Investor Relations, you may begin your conference..

Good morning. Welcome to The Chemours Company’s fourth quarter and full year 2018 earnings conference call. I am joined today by Mark Vergnano, President and Chief Executive Officer and Mark Newman, Senior Vice President and Chief Financial Officer.

Before we start, I would like to remind you that comments made on this call as well as the supplemental information provided in our presentation and on our website contains forward-looking statements that involve risks and uncertainties including those described in the documents Chemours has filed with the SEC.

These forward-looking statements are not guarantees of future performance and are based on certain assumptions and expectations of future events that may not be realized. Actual results may differ and Chemours undertakes no duty to update any forward-looking statements as a result of future developments or new information.

During the course of this call, management will refer to certain non-GAAP financial measures that we believe are useful to investors evaluating the company’s performance. A reconciliation of non-GAAP terms and adjustments are included in our release and at the end of this presentation.

I will now turn the call over to Mark Vergnano who will review the highlights from the year.

Mark?.

Well, thank you Jonathan and good morning everyone. Thank you all for joining us today and I hope you all remember Valentine’s Day. So I am proud to report our results for the fourth quarter of 2018, our best full year since becoming Chemours. For the full year, we generated over $6.6 billion in revenue and over $1.7 billion in adjusted EBITDA.

This represents an improvement of 7% on the top line driven by sales growth in each of our three segments. Adjusted EBITDA was up 22% and created a 320 basis point expansion in our adjusted EBITDA margin. Free cash flow conversion was strong and the company delivered free cash flow of over $640 million in 2018, a 14% increase from 2017.

Looking beyond the financials, as I reflect on 2018 I see significant progress against the ambitious goals we have set as a management team since our inception. When we initiated our journey in mid 2015, we wanted to create a new kind of chemistry company for a world that demands more.

Today, we have laid the foundation for long-term profitable growth and are investing in the resources, infrastructure and talent which will make that great future possible. 2018 was the year we released our first corporate responsibility commitment report.

I am proud of the ambitious goals we have defined because they will keep Chemours on the path to sustainable, profitable growth for years to come. Our corporate responsibility commitments truly embody the spirit of what makes us a different kind of chemistry company.

It is a foundational element of our strategy and will be incorporated in everything we do going forward. We achieved a number of important strategic goals across our segments in 2018, bold steps which were designed to help Chemours generate more stable predictable earnings and cash flow growth over time.

In our Titanium Technologies segment, we initiated the implementation of our Ti-Pure value stabilization strategy and unveiled our assured value agreements and Ti-Pure Flex frameworks.

In our Fluoroproducts segment, we achieved mechanical completion of our new low cost Corpus Christi facility towards the end of 2018 and we recently announced the startup of this facility, which will ramp up over the coming years.

We also announced selection by a number of air conditioning OEMs who are in the process of designing next generation stationary equipment that is expected to use our Opteon refrigerant blends.

Most recently Carrier has selected our Opteon XL 41 blend as the primary lower GWP refrigerant to replace our 410A inducted residential and light commercial package products. These products are expected to be available in North America beginning in 2023.

Opteon XL 41 was developed to achieve the maximum possible reduction in GWP to satisfy long-term regulatory requirements. This revolutionary product reduces CO2 equivalent emissions by nearly 80% and improves compressor energy efficiency when compared to our 410A.

This is an important step for Chemours as the commercial and residential markets for stationary air conditioning represent the next wave of growth for Opteon. It’s a much larger market globally than the mobile air conditioning market and one where Chemours is positioned to be a leader.

2018 was not without its challenges, most notably, a sharper than anticipated reduction in demand in our Titanium Technologies segment. We continue to execute our TVF strategy with confidence and resolve, as we fundamentally believe is the best long-term solution for both Chemours and our customers.

The strength of our balance sheet affords us the ability to invest in our company, while continuing to return significant cash to shareholders through our share repurchase authorization and dividends. We’ve returned nearly $800 million in 2018 alone.

Since the year started we have repurchased an additional $150 million worth of shares bringing our total repurchases to $400 million under our $750 million authorization. Our Board of Directors has strengthened our shareholder commitment with the recent approval of a $250 million increase in our existing repurchase authorization now to $1 billion.

Now with approximately $600 million remaining on our current authorization, we have the flexibility to continue our opportunistic share repurchasing strategy through 2020. We have come a long way since spin and created significant shareholder value over that time. The path has not always been straight or easy.

It certainly had its twist and turns, but through it all we’ve grown more capable as a team and we’ll continue to apply a 100% of our collective talent to the long-term success of Chemours. The future of this company is bright and I am personally excited for what lies ahead.

With that, I will now turn the call over to Mark Newman to cover our full year and fourth quarter financial results in more detail. I will be back to discuss our segment results and outlook for 2019 prior to opening the call for Q&A..

Thanks Mark. I will begin my comments on Slide 4. As Mark mentioned 2018 was a record year with broad based growth across all of our businesses and solid improvement in all our key financial metrics. I am proud to say that this marks three full years of improving financial results since spin.

Net sales of over $6.6 billion improved 7%, a result of mid to high single-digit revenue growth from each of our segments. GAAP and adjusted net income rose to approximately $1 billion, a year-over-year increase of 33% and 42% respectively. These translated into GAAP EPS growth of 39% and adjusted EPS growth of 48% in comparison to 2017.

Adjusted EBITDA of $1.7 billion increased over $300 million versus the previous year, a 22% improvement. This resulted in margin expansion of 320 basis points to over 26%. Free cash flow generation of $642 million was up nearly $80 million when compared to 2017. Let’s go to Slide 5 to review our Q4 results.

While 2018 was a great year for Chemours, we finished with a softer Q4 than in 2017. This slide contains our fourth quarter financial summary compared to last year’s historically strong fourth quarter. Quarterly results were primarily driven by lower sales volumes of Ti-Pure titanium dioxide in comparison to a record volume quarter last year.

Fourth quarter GAAP net income of $142 million and adjusted net income of $185 million resulted in GAAP and adjusted EPS of $0.81 and $1.05 per share respectively. Adjusted EBITDA of $341 million translated into an adjusted EBITDA margin of over 23% for the fourth quarter with corresponding free cash flow of $105 million.

Our pre-tax ROIC of 39%, up from 36% a year ago highlights our continued commitment to invest in our portfolio through high-return projects. Now to our fourth quarter adjusted EBITDA performance on the next slide.

Higher global average selling prices of Ti-Pure titanium dioxide, along with increased price for fluoropolymers and mining solution products delivered nearly $65 million of adjusted EBITDA growth year-over-year. Lower volume in Titanium Technologies more than offset growth in Opteon refrigerants and fluoropolymers products.

This resulted in an approximately $80 million unfavorable impact to adjusted EBITDA. Currency was a modest $13 million headwind in comparison to the fourth quarter last year. As we’ve seen through 2018, we continue to incur higher variable costs in comparison to the prior year, including raw material costs.

This impact was somewhat offset by higher other income in comparison to last year’s fourth quarter resulting in a $23 million decrease in adjusted EBITDA. Overall, fourth adjusted EBITDA declined approximately $53 million year-over-year to $341 million, again versus an exceptional 2017 fourth quarter. Moving to the adjusted EPS bridge on Slide seven.

Fourth quarter 2018 adjusted EPS was $1.05 per share in comparison to the prior year quarter of $1.19 per share on a fully diluted basis. Operating earnings, reflecting the impact of lower volume in Titanium Technologies declined $0.23 per share.

Our share repurchase plan continues to provide a meaningful benefit to quarterly adjusted EPS on a year-over-year basis, contributing $0.09 per share. Now on to liquidity on the next slide, our cash balance at the end of the quarter was approximately $1.2 billion.

Operating cash flow in the quarter was $259 million along with capital expenditures of $154 million. This resulted in free cash flow of $105 million for the quarter. Our CapEx spend for the year came in just on the $500 million.

We repurchased over 3 million shares during the fourth quarter for nearly $125 million, along with our dividend, we returned $166 million to shareholders in Q4. Our commitment to our capital allocation strategy returned nearly $800 million to shareholders in 2018.

Since the authorization of our $750 million repurchase plan, we have repurchased over 6 million shares for approximately $250 million through December. In Q1 2019, we repurchased an additional $150 million of shares.

As Mark mentioned at the outset of the call, our Board has elected to increase the existing share repurchase authorization to $1 billion through to 2020, representing an additional $250 million of repurchase capacity. In total, we have approximately $600 million remaining on the expanded program.

Our total liquidity stands at approximately $2 billion as of December 31 taking into account our $800 million senior secured revolving credit facility. Our net debt of approximately $2.8 billion translated into a net leverage ratio of approximately 1.6x on a trailing 12 months basis.

We believe that our de-risked balance sheet gives us the ability to execute our strategy through any potential economic cycle while returning the majority of our free cash flow to shareholders. And now I will turn the call back to Mark to review our segment results..

Thanks Mark. Turning to Fluoroproducts on the next slide, we continue to be pleased with the progress of this segment. 2018 results built on the long-term secular growth trends for this business which we would expect to remain a source of growth over the coming years.

2018 sales rose 8% to nearly $2.9 billion with solid volume and price increases year-over-year. Adoption of our low GWP refrigerant Opteon continues despite the slowdown in global auto builds as we entered the fourth quarter.

We remain committed to supporting our customers to the low GWP switch including providing base refrigerants during this time of transition. As expected volume for our base refrigerants declined year-over-year reflecting the regulatory environment. This was mostly offset by higher pricing with price peaking in the second quarter of last year.

Our fluoropolymers products saw solid demand improvement in 2018 even with the supply constraints we mentioned last quarter. We continue to make progress unlocking capacity in our key product lines to meet growing customer demand. We also implemented price increases throughout 2018 providing an up-lift to segment revenue.

For the full year segment adjusted EBITDA increased to over $780 million, a 17% increase versus 2017. Our fourth quarter revenue of nearly $650 million reflected the strength in our Fluoropolymers business and positive revenue growth for Opteon refrigerants, partially offset by declines in base refrigerant revenue.

2017’s fourth quarter was the beginning of the strong price increases for base refrigerants as the EU prepared for our quota step down in 2018. As prices came of the highs from earlier this year, we experienced a bit of a headwind versus fourth quarter of 2017.

In total our quarterly adjusted EBITDA improved 3% to $164 million when compared to last year. Looking ahead, as I mentioned earlier, we are actively working with stationary OEMs as they develop next generation stationary refrigeration equipment which we expect to drive long-term growth for our Opteon blends.

To help supply this emerging market, we are in the process of ramping up our new Corpus Christi Opteon facility. When fully operational this plant will triple our Opteon capacity ensuring our ability to meet future demand from right here in the USA.

We also expect sustained demand for our Fluoropolymers products throughout 2019 contributing to the anticipated year-over-year growth of our Fluoroproducts segment. I look forward to providing updates on our application development commercial wins later in 2019.

Overall, we anticipate Fluoroproducts segment top line growth of 1x to 2x global GDP consistent with our long-term view for this business. Turning to our Chemical Solutions segment on the next slide, full year net sales increased 5% to over $600 million driven by broad based growth across most businesses. 2018 adjusted EBITDA of $64 million rose 12%.

Sales in the fourth quarter improved 11% to $149 million driven by revenue growth in our mining solutions business. Fourth quarter adjusted EBITDA was $14 million in comparison to $20 million last year. As you may recall last year’s fourth quarter included approximately $7 million of licensing income that we did not expect to repeat.

We remain sold out at our Memphis mining solutions facility reflecting the sustained demand from mining solutions products in the Americas. I want to take a minute to just reflect on the impressive progress of our Chemical Solutions segment since mid-2015.

This is a segment that since spin has divested roughly half of its revenue, yet more than doubled its adjusted EBITDA. When compared to full year 2015, Chemical Solutions 2018 margins have expanded 800 basis points.

Despite our current supply constraints, we expect to see further margin expansion in 2019, driven by our recently communicated price increases for Mining Solutions products.

Moving to Slide 11 to review our Titanium Technologies segment, 2018 segment revenue rose to nearly $3.2 billion, a 7% increase from 2017, driven by our previously communicated price increases for Ti-Pure titanium dioxide.

Lower volume for the full year was driven by a combination of customer inventory de-stocking and reduced demand across quarter three and quarter four. For the full year, segment adjusted EBITDA improved to over $1 billion, a 22% increase from the prior year.

Full-year adjusted EBITDA margins were 33%, fourth quarter results were lower than our record fourth quarter 2017 due to lower volumes sold in the period. The lower volume was partially offset by higher Ti-Pure global average price, reflecting previously communicated price increases.

Fourth quarter global average price for our Ti-Pure pigment held steady when compared to the third quarter of 2018, consistent with our Ti-Pure value stabilization strategy. Fourth quarter adjusted EBITDA of approximately $200 million translated into an adjusted EBITDA margin of 30%.

For the full year 2019, we anticipate making further progress on our Ti-Pure value stabilization strategy and we’ll work with our customer base to meet their Ti-Pure pigment needs. We believe that the lower volumes we experienced in the second half of 2018 will continue into 2019, leading to lower year-over-year results for this segment.

We expect that the first quarter of 2019 will be weaker than the fourth quarter of 2018, reflecting the drag of lower volume and anticipated transitionary share loss as customers adapt to our Ti-Pure value stabilization strategy.

We believe that this share loss will materialize, principally in the plastics end market and would expect it to reverse as the demand environment improves. Despite the slower start to the year, as we look to the second half of 2019, we anticipate demand for TI-Pure pigment to return to more normalized levels.

We will provide more color on our expectations as the year progresses. We remain fully committed to our Ti-Pure value stabilization strategy and continue to engage with customers on long-term AVA contracts and our recently launched Ti-Pure Flex channel.

We believe that this strategy is the best way for us to support our customers and their growth over the long term. Under this framework, we will provide our customers with price predictability and volume reliability.

Chemours benefits from more stable margins and earnings over time, it is a true win-win with tremendous value creation potential, value which we will pursue despite any near-term challenges. On the next slide, I will provide our 2019 outlook on a companywide basis.

Looking ahead to 2019, we believe Chemours will continue to generate strong earnings and cash flow. We expect continued growth across our Fluoroproducts segment in 2019 led by Opteon refrigerant growth and the implementation of our application development strategy in polymers.

We anticipate year-over-year double-digit growth in our Chemical Solutions segment. In our Titanium Technologies segment, we expect demand weakness seen in the second half of 2018 to persist in 2019. The anticipated weaker results in Titanium Technologies are expected to more than offset anticipated growth in the other two segments.

In total, we expect 2019 adjusted EBITDA between $1.35 billion and $1.6 billion. This translates into EPS of between $4 and $5.05 per share based on our current share count. Even with the lower earnings expectations for 2019, we anticipate strong free cash flow generation for the year of at least $550 million.

2019 will be a year in which we continue to invest in our business to drive long-term shareholder value. Capital expenditures are expected to be approximately $500 million. We would also expect to continue to execute share repurchases opportunistically under our now expanded $1 billion share repurchase authorization.

Turning to the next slide, we mentioned last year that we continue to find attractive high-return opportunities to invest in our portfolio for future growth. We anticipate our capital expenditures to be approximately $500 million in 2019, with a CapEx split across three areas.

First, approximately $200 million of run and maintain capital across all our sites and facilities.

Second, approximately a $100 million invested in high-return growth projects, primarily capacity expansions related to certain sold out lines of fluoropolymers, ongoing debottlenecking in Titanium Technologies and investment in our captive ore mining operations. Finally, two important projects.

First, approximately $100 million of sustainability investment related to our Fluoropolymers facilities, primarily Fayetteville and Dordrecht works. As a reminder, we spent approximately $35 million in 2018 to capture and remove waste water from our Fayetteville facility.

This project seeks to reduce and eventually eliminate that drag on our profitability. Second, approximately a $100 million of CapEx related to the build-out of our new R&D facility, which will enable us to consolidate our lab space after the expiration of our lease with DuPont in 2020.

Our investment in R&D is critical to driving future ways of growth in Fluorochemicals, Fluoropolymers and Titanium Technologies in the years to come and we are excited about our partnership with the University of Delaware to bring this facility online.

2018 was an excellent year for Chemours, while demand for Ti-Pure titanium dioxide began to soften in the second half, the team delivered strong results and we continue to execute on our Ti-Pure value stabilization strategy with both confidence and resolve.

We believe that the implementation of our Ti-Pure value stabilization strategy is a win-win for us and our customers, resulting in a more predictable Ti-Pure pigment pricing and supply chain certainty to support our customers’ growth. The best kept secret in specialty chemicals is our Fluoroproducts business.

The combination of Opteon and Fluoropolymers application development will deliver growth well into the next decade. The shift to low GWP stationary refrigeration and the arrival of 5G are just two of the many secular growth trends, which are expected to drive significant upside for Chemours. To our customers, thank you for your trust in us.

We are here because of you and we value the partnerships that we have built together. We look forward to working alongside you to help you grow and succeed with your customers. To all of our global employees across our facilities and sites, thank you for delivering a great year.

We will succeed as we always have by locking arms together as a team and executing on our strategy. Finally, to our investors, thank you for your support and your continued investment in Chemours. We are committed to increasing shareholder value over time and believe that we have the right portfolio, strategies and people in place to do so.

With that, we’ll now open the line for your questions..

[Operator Instructions] Your first question comes from John McNulty from BMO Capital Markets. Your line is open..

Yes, thanks for taking my question. I guess with regard to the TiO2 platform, I guess, how are you thinking about pricing as you look through 2019? And then I guess also with regard to some of the inflation that you had spoken about in the business, I guess early on and in the release.

I guess, how should we be thinking about how you manage through that inflation as we look through 2019?.

Yes. Thanks, John.

We’re looking at pricing being fairly stable through the year, that’s part of the work we’ve done with our AVA contracts, obviously on our Ti-Pure Flex portal we have more flexibility on price if we want that our AVA contracts will always be advantaged on price, but the Flex pricing allows us to move that up, if we see things differently.

Right now our raw material look is fairly flat, from a pricing point of view.

And again, our contracts will reset as we’ve talked about in the six months increments based on producer price index, so if there are other things there that will really take into account that kind of pricing, but I think as you look at us for 2019, think of it as fairly flat pricing..

Great. And then maybe just a follow-up, with regard to your commentary around it looks like some of the share that you may lose to, with regard to some of the plastics demand.

I guess what percent of your business, do you think is in jeopardy in terms of the volumes there until the demand starts to kind of stabilize itself?.

Yes, I don’t know if we really lay out a percentage. I would say as we sort of set the guidance, we yes, we were conservative, but prudent in our mind because we looked at this from a standpoint of, our range was based on a lot of sophisticated models we have, and I would say the low-end of that range was based on very low demand.

In that, we’ve also looked at what kind of share could we lose in the early going. And as I said in the commentary, we really think that’s primarily focused on the plastics space because that’s a little bit under pressure right now, as all of you who follow plastics know from that standpoint.

We think that’s going to change in the second half of the year. So, I would say that for the first two quarters is really where we are probably the most conservative, but we do believe things are going to improve significantly in the second half. Primarily because the demand comes back there is no new supply.

So, from that standpoint, we think this is going to be a positive story as the year progresses..

Great. Thanks very much for the color..

Sure, John..

Your next question comes from Duffy Fischer from Barclays. Your line is open..

Yes, good morning, fellas. I just wanted to get a sense, you already talked about you think price will be flat, raw mats will be flat this year. If you think about the high-end and the low-end of your guidance, roughly what’s the delta in volumes for TiO2.

So, with the 135, how much down would volume be this year and then at the 16 level, what would volume do this year?.

Yes, so you hit you really hit our guidance on the head, Duffy, as you normally would. It’s the delta is in demand, right. So, as we do our modeling, we’re looking at the extremes of demand, we’re not going to share the volume that we specifically have, but it is purely around volume and that volume is really around demand.

And I think the best way to think about it from our point of view is the normally in these, kind of situations where you’re in a de-stocking area or when you’re in a lower demand type of space, you have two big variables right, price and volume. We only have one variable here, which is volume and that’s what we’re working off of.

So that’s the extreme that you’re seeing in our guidance, it’s almost entirely around TiO2 volume..

Okay.

And then if we could jump on the Opteon plant, how should we think about that impacting earnings this year and into next year as that starts to ramp, will there be lumpy costs in one quarter where we start to see margin improvement toward the back-end of the year because of the better cost, just how does that feather in throughout the year as far as margins go?.

Yes, so in the beginning as you noted, as we start up, obviously there’s more cost. The cost benefit we see from that production facility, which is the lowest cost HFO facility in the world, will really manifests itself toward the end of this year, but mostly toward the beginning of next year.

However, we are getting more volume out of that than what we have currently, so because of that our revenue will go up at the same time. So, the cost benefit is primarily going to be way at the back end of 2019 and toward the beginning of 2020 is when you’ll start seeing that..

Great. Thank you guys..

Your next question comes from Robert Koort from Goldman Sachs. Your line is open..

Thanks. Good morning..

Hey Mr. Koort..

Mark, you talked about the resi opportunity for Opteon, I am wondering if you could give a little more clarity on the patent challenges, I think you guys have said in 2023 you are going to start to see some HFO expirations in 26 Opteon.

So, could we start to think the size of that resi market is enormous but maybe the competition can build or what gives you some confidence that you will continue to stake out your fair share of that business once those patents start to roll on?.

Yes. Bob, we do have a lot of patent protection for a period of time. We think on the stationary blends which are unique we have a lot of patent protection into the 2030s.

So from that standpoint when you start doing blends, you have some uniqueness in terms of how you do the blends, what you blend it with and a proprietary position usually with your customer base. So that actually is going to extend longer than just the pure HFO patents that are out there.

So from that standpoint, we feel very confident and why we say we see this growth happening over the next decade because of that..

And then I think you specified that plastics customer base maybe is having a little harder time, would you throw in that 10% or 15% of volume you sell into the paper industry similarly or is there something unique to your plastic customers that doesn’t replicate it at the paper or the coatings customers?.

Yes. I would say plastics because of all the dynamics you know, the laminate side is under pressure primarily from their demand side. So, yes, I would say the laminate customers are in that same boat..

Got it. Thank you..

Yes..

Your next question comes from Laurence Alexander from Jefferies. Your line is open..

Good morning. I guess first of all on Titanium Technologies, can you characterize on the flex channel, how much volume is going through that, give some sense for the spread between that and the regular pricing.

But I guess also can you help explain the volume calculation in the deck, back of the envelope it looks like your volumes were down about $50 million, but the EBITDA hit was 81, but can you explain how that works? And if that kind of leverage continues, how does that affect your – the way you think about the Ti-Pure strategy?.

Yes. So on the first piece, Laurence we just kicked off Ti-Pure Flex actually just in the UK and Brazil in February. It will go global March 1.

Over time, we expect pretty good balance between what’s on Flex and what’s in our contracts most likely, but we will play that out as we go forward, because I think we will get a good sense of that as we come into the March, April, May timeframe as people who haven’t entered into our AVA contracts will be primarily purchasing the Flex platform.

In terms of the volume question that you have, I would say that first of all think of it as a different way, I can’t validate your number, that probably was a little bit more volume there than you had mentioned, but you got to remember as our volume comes down, as we have always said, we are very willing to let volume come down versus price that is the whole basis for the value stabilization strategy and we have the flexibility that how we operate our assets, but you do have fixed cost absorption issues when you have lower volume.

And I think that’s what you are seeing when we get to a certain level of volume is more fixed cost getting absorbed by less pounds and that’s really what the hit is on the bottom line. That is all contemplated, we understand that and I don’t want anyone to think that is going to be a reason to see us turn away from our strategy.

We are absolutely committed to it, because if you think of the alternative to that, the alternative to that would have been volume down and price down and we think that would have been actually a worse outcome. So we still think this is the best outcome for us overall..

And I guess just to follow-up are you seeing outside plastics and laminates, how much volumes swing did you see in the sort of softer environment that we have seen in the last, call it, 3, 4 months. I mean, I know you were expecting like sort of to take more of the Flex in the channel.

Was it really just those two areas or do you see it more broadly?.

Yes, I’d say it’s more regional, right. So, Asia down, Europe sort of flattish, North America continues to be strong. And I’d say, when you look at it from a segment point of view, the segment sort of flow that way. We’ve seen pretty good strength in the coding side, as well as the North America side from that standpoint.

So, I would say, when you look at the volume piece, it’s probably more regionally based than it is by segment..

Okay. Thank you..

Your next question comes from Don Carson from Susquehanna. Your line is open..

Yes, Mark, wanted to follow up on volumes and in particular your 19% Q4 decline.

So, how much of that was share loss? How much of it was a tough comp for the year before? And what’s your sense of what customers are doing in terms of destocking? So what – is there a major difference here between your shipments and market demand?.

Yes, Don, I would say that was primarily pure demand and destocking versus share loss, and we also had a big comparison to the year before, pretty strong comp in the fourth quarter of the year before. So, think of it as comp with a very strong year prior quarter and also think of it primarily as true demand not market share loss.

So, that would be the, I guess, the best way I would characterize it.

I’m sorry, Don, the second half of your question?.

What customers are doing in terms of their destocking? So, are your shipments lagging end-market demand because customers are drawing down inventories or do you think that drawdown is coming to a close as prices stabilize in markets like North America?.

Yes, we saw a pretty sharp decline that I would attribute to destocking, second half of last year and the beginning of this year. I think going forward, as you look at probably the middle of the second quarter and for the rest of the year it’s going to be really about demand.

So, I think you could say through this quarter being the first quarter you probably be done with all the destocking. Now it’s going to be true demand and what’s the market really pulling forward from a demand standpoint..

Right. Thank you..

Your next question comes from Arun Viswanathan from RBC Capital Markets. Your line is open..

Good morning. Thanks for taking my question. Just curious how we should think about titanium dioxide volumes through the year? So, I understand there’s going to be destocking that continues maybe in – should wrap up in Q1.

But, I guess, are you hearing from your customers that they’re expecting weaker demand in ‘19 is that what you’re also trying to communicate or is it just certain sectors like plastics and laminates? Thanks..

Yes, I would say, overall, we’re not hearing weaker demand for the year. I think you’re going to see a distinct difference in the two halves of the year, the first half and the second half of the year.

From our standpoint, we’ve signaled that we’re going to probably have a fairly weak first quarter that I think will be demand based and a bit market share based, which we believe will recover toward the second half of the year.

So, overall, I think demand if you look at it year-on-year should be fairly good and it’s just going to be a matter of timing in terms of the year versus second half being much stronger than the first half..

Okay, thanks. And just as a follow-up on fluoro, maybe you can just describe what you’re seeing in the mobile markets there? Is there any impact from any slowdown in global auto production? Thanks..

Yes, when you look at global auto production probably China is the weakest, but we don’t sell HFO in China. So that’s why that doesn’t have a big impact on us, slightly down in Europe, flattish to slightly down maybe in the U.S. So – but you got to remember, so, think about Europe for a second, slightly – flat to slightly down, U.S.

even if it’s down a little bit, we’re gaining share there. So, only really about 50% penetrated in the U.S., we’re going to go to 100% penetrated by 2021. So, the ramp-up actually more than offsets any downturn you see in production. So, net-net, you’re still going to see an increase for automotive for us..

Okay, thanks..

Your next question comes from Matthew DeYoe from Vertical Research. Your line is open..

Hi, good morning. So, question for you on your inventory balance.

Why is it up so much over the past 2 [ph] years? Looks like something like 50% since year-end 2016 and should the slowdown be an opportunity to harvest a lot of this new working capital?.

So, it’s Mark Newman here. I think when I look at inventory, we did have some increase in finished goods, but the majority of our increase actually was in our raw materials. As we had indicated on our Q3 conference call, with the lower demand that we saw in TiO2, we had elected to make some strategic ore purchases throughout the year.

So, we ended the year with, I would say, slightly higher inventory, but it’s primarily focused in raws and it’s primarily focused within that in our TiO2 ore base..

Okay. Presumably then that would be an opportunity in 2019 to move lower. But as a follow-up and maybe not to beat a dead horse here, but I’m going to try my best to do it. On the volume side for TiO2, just trying to frame like the macro backdrop on these scenarios.

So, the low-end, I mean, does that imply just destocking throughout the whole year and no back half pickup or is the $4.00 or $5.05 all still reflective of some form of back half brand. Just how bad would the bad scenario be? Yes..

Yes. So, we – I will have to say our TiO2 team probably has some of the most sophisticated statistical models of all our businesses based on past experience, marking conditions, macro factors.

So, our bottom end of our range and, I guess, the best way to say when we give our range for 2019, the biggest swing in that is our TiO2 volume for the whole – so as you look at our range and the bottom half of our range is really low demand.

As I mentioned before, it’s probably a little conservative, but we think that’s prudent, we’ve had a very strong record of delivering against our targets and so we’re going to do that. So you – so it is a low demand case. I’m not saying it’s a high probability case, but it’s a low demand case.

The higher end of our range is predicated on something that we would consider to be a good recovery in the second half, a solid recovery in the second half. So, in no cases are we saying, hey, we’re looking at a recessionary period here.

We don’t believe that’s the case, but there is a big swing in our low-end case and our high-end case based on volume of TiO2 and that volume is really based on demand. So yes, it is a conservative, but we think prudent case on the bottom side..

Yes, because just looking, I mean, volumes were down 7% in ‘18 in TiO2 and if you throw like a 50% decrement, your low-end is something like down 20% and plastics is only 26% of your TiO2 business I think so, I would, yes, okay, we follow it more offline. Thank you..

Sure..

Your next question comes from P.J. Juvekar – your line – from Citi. Your line is open..

Yes, hi, good morning..

Hi, P.J..

So, Mark, you had 2 quarters of negative volume growth in TiO2, I think volumes were down 10% in 3Q and 19% in 4Q, and you just mentioned that you did not build inventory.

So, I’m assuming that you 10 [indiscernible] your plans back to adjust for demand decline?.

Yes..

So, can you talk about what your utilization rates are, and where are your inventories relative to past year ends? Thank you..

Yes, as Mark said, P.J., most of that inventory is in ore. We do have some pigment inventory, because as you said we slowed down fairly fast in the second half. So yes, we have some pigment inventory as well, but the majority of it is ore inventory and other raw material inventory.

As we are looking at the first quarter, we are at lower utilization rates than what we would normally operate at, we think that will move up pretty quickly in the second quarter. So, I would say, we have 1 quarter that we’re in right now, which will be low utilization rates compared to the rest of the year.

Rest of the year, we’ll be ramping up to normal type utilization going forward and that’s the way we’ve decided to operate with the TVS strategy..

Thank you. And then second question on your Opteon and refrigerants. Can you talk about Opteon pricing versus base refrigerant pricing, and how much of your business now is in HFOs versus the base refrigerants? Thank you..

So, from a pricing standpoint in the automotive side, we’ve told everyone, you definitely have pricing down when you’re with the bigger OEMs year-on-year, that’s part of the productivity.

Our job is to keep our margins flat by driving productivity to sort of offset that, but on the stationary blends you have pricing opportunities depending on the blends. Remember, I – as I mentioned to Bob, these are proprietary blends, they’re very unique to each of your manufacturers based on the equipment they have.

So, you have solid pricing opportunities there. I think there’s solid value opportunities for our customers as well from that standpoint. Obviously, HFOs will be larger than our base over time. We really don’t disclose the split between the two, P.J.

But over time HFOs will be much larger than the base refrigerants, that’s our whole goal and reason for being in the refrigerant business to be honest with you. Outside of Europe and the U.S., the rest of the world is primarily a base refrigerant user. So, those will continue over time until the regulation sort of shifts them over to the HFO side..

I’m sorry, Mark, did you say that base refrigerants are flat or how is the pricing shaping there? Thank you..

The price – the volumes obviously will come down in time on base refrigerants. On pricing, it’s really a – I would say, it’s a supply/demand situation, P.J. that we have.

They peaked for us in Europe in the middle of last year, they came down toward the end of the year, over time they will go up, because as quotas sort of come into play, you’re just going to naturally see those base refrigerant prices go up.

But they do fluctuate fairly quickly and we saw peak in the middle of the year came down toward the end of the year, and I would say, as we walk through ‘19 toward the next quota drop, you’ll see again prices go up again at the next quota drop..

Great. Thank you..

Yes..

Your next question comes from Jeff Zekauskas from JPMorgan. Your line is open..

Thanks very much.

Did Opteon volumes grow about 30% in 2018 and do you expect them to grow about 20% in 2019?.

They were – Jeff, they were slightly under 30% in 2018, they were probably in the mid-20s. And I would say that there’ll definitely be double-digit as we’re going into ‘19 going forward. So, still very, very, very solid growth across the whole platform..

Can you remind me Mark, where you make Opteon now? And is the goal to consolidate all of the manufacturer into Corpus Christi over the next 18 months? And, I guess, by double-digit growth, you mean, somewhere between 10 and 20 [ph] Is that right?.

Yes. You understand our code, Jeff, you’re so good. Yes, between 10 and 20, I think is where we’ll be around Opteon.

Today we manufacture in China, we will move that all over to our – mostly all over to our facility in Corpus because it’s a lower cost facility and be able to utilize the facility we have in China for our – for very unique blends or unique opportunities that we have including our Foam business as well..

Okay, great. Thank you so much..

Sure..

Your next question comes from Vincent Andrews from Morgan Stanley. Your line is open..

Thank you, and good morning. I guess, I’d just like to play devil’s advocate for a moment on the idea that you can lose the share and then get it back. And, I guess, what I’m trying to get at is, I think about ‘17 as a significant stock up year, ‘18 in the second half into the first half of ‘19 is a destock year.

So, I’m struggling to really have confidence in what’s the new base level of volume is that we’re going to grow off of? And so I can’t help wondering that when all this inventory settles out and prices are flat and customer inventory management adjusts, maybe there will be a little extra capacity around and maybe there is risk that you don’t get the share back.

So, maybe you could help me by quantifying some of that to help us have confidence that there really won’t be supply once demand normalizes?.

Sure. So, Vincent two things. One thing is, demand really grows at GDP rates over time for this industry. I mean, it’s very, very – you can see the correlation. So, from that standpoint, I think it’s a very steady demand growth over time. Supply, there is no new supply on the horizon over the next couple of years that we see.

We keep a pretty good eye on this from that standpoint. So, really the way for us to regain our share is twofold. One is, the supply/demand balance that’s out there and we think that demand will outstrip supply at some point in time. And the other is our new products, our products that actually customers prefer versus other products.

So, our job one is to make sure we have enough supply out there and that’s why we’re doing the debottlenecking work at our facilities to sort of basically open up another line over the next 3 years, and two, continue to work hard at new product development in the – in our Titanium Technologies business, so that our customers can enjoy higher value products going forward, that’s our – really our game plan of how we get our share back..

Okay..

So – when you do the math balance, the math balance will show you over the next 18 months that if the demand and supply are going to be pretty close..

Okay.

So, just to follow up on that, is it fair to say then that if we are talking about GDP growth over time, we are talking about the next 18 months, if there is risk to the back half of the year that you don’t get as much volume as you – back as you think or is that already contemplated in the low-end of guidance?.

It’s contemplated in our range. Yes, that’s why I think people have said the low-end of the range or implying in this call, low-end of the range is a bit conservative, that’s implied in that range..

Okay, that’s very helpful. Thank you very much..

Sure. Thanks..

Your next question comes from John Roberts from UBS. Your line is open..

Thank you.

Are you still going ahead with your 10% capacity expansion in TiO2 across your network? Are you going to pause for a year and rethink that in 2020 instead of 2019?.

No, John, we’re continuing with that, that’s a very cost-effective way for us to add capacity and we believe we will need that in 2020 and 2021. So, we need to get that done now so that we’re ready and the demands going to be there..

Okay. And then how should we think about seasonality in the back end of the year, normally the fourth quarter volume I think was seasonally slow, the last 2 years having been very representative, I would say, because we’re starting slow.

Do you think there’s a reasonable chance that we’re continuing to ramp as we get into the back end of the year besides just the second half, but maybe the fourth quarter versus third quarter?.

Yes, John, I think that’s possible based on the pick-up that we – that could happen with the economy in the second half. So, you could have a little bit of skew versus the normal shape, if you will, of demand normally on the TiO2 side, you could see a little bit stronger second half than normal..

Okay, thank you..

And we have a question from Jim Sheehan from SunTrust. Your line is open..

Good morning.

In your free cash flow guidance, what do you assume for working capital?.

Yes, we normally don’t parse out our working capital assumptions, I think has been identified on the call, we did end the year with slightly higher inventory than would be the norm. So, my expectation is, there could be some small opportunities here on working capital.

Obviously, that to match that with what’s been said before, we expect a weaker first half versus the second half, so, it take – it take a little time, I would say, to work through any working capital improvement throughout the year..

Thank you.

And could you comment on efforts in Europe to label titanium dioxide or carcinogen? And also comment if you would on the substitute ability of TiO2 in cosmetic and food applications?.

Yes, I know that was something that came up to the REACH sub-committee that was deferred, so that decision was deferred. We’ve been very, very open about our position there. Again, this is around inhalant aspects of TiO2.

So, we’re continuing to work with the regulators there and we think that’s just something that’s going to be dealt with in the proper way with the committee there. So, again, that decision was deferred going forward.

In terms of the cosmetics side, that’s something that we continue to work with our customers to make sure for the most part this is about production issues, then it is final product issues. So we at this point in time don’t see an issue with that from a substitution point of view..

I now turn the call back over to Mark Vergnano..

Well, listen I want to thank everyone.

We didn’t get many questions about our share repurchase, but I will say that that is an area that our board and ourselves are very aligned with, that’s why they upped our authorization another $250 million and that is an area that Mark and I are very committed on around making sure that we are giving our shareholders a great return on this company.

We think it’s undervalued and we will be opportunistically using that going forward because of that. So again we thank you for all your time this morning. We really look forward to speaking with you. Both Mark and I will be on the road in the first quarter with Jonathan.

So if you have any questions, we didn’t get to please reach us when we are on the road or reach out to our Investor Relations team as well. So thanks again..

This concludes today’s conference call. You may now disconnect..