Kurt D. Ogden - Huntsman Corp. Peter R. Huntsman - Huntsman Corp. Sean Douglas - Huntsman Corp. Simon Turner - Huntsman Corp..

P.J. Juvekar - Citigroup Global Markets, Inc. Aleksey Yefremov - Nomura Instinet Kevin W. McCarthy - Vertical Research Partners Hassan I. Ahmed - Alembic Global Advisors LLC Frank J. Mitsch - Wells Fargo Securities LLC John Roberts - UBS Securities LLC Daniel Rizzo - Jefferies LLC Robert Andrew Koort - Goldman Sachs & Co. Jeffrey J.

Zekauskas - JPMorgan Securities LLC Matthew Stevenson - SunTrust Robinson Humphrey, Inc. Michael J. Sison - KeyBanc Capital Markets, Inc. Roger Spitz - Bank of America Merrill Lynch.

Good day, ladies and gentlemen, and welcome to the Q1 2017 Huntsman Corporation Earnings Conference Call. My name is Mark, and I'll be operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Kurt Ogden, Vice President of Investor Relations and Finance. Please proceed, sir..

Thank you, Mark, and good morning, everyone. Welcome to our first quarter 2017 earnings call. Joining us on the call today are Jon Huntsman, our Founder and Executive Chairman; Peter Huntsman, President and CEO; Sean Douglas, Executive Vice President and CFO; as well as Simon Turner, the Division President for Pigments & Additives.

In addition to that, we have Ivan Marcuse, our newly appointed Vice President of Investor Relations, who will be leading our Investor Relations effort going forward. This morning, before the market opened, we released our earnings for the first quarter 2017 via press release and posted it on our website, huntsman.com.

We also posted a set of slides on our website, which we will use on the call this morning while presenting our results. During this call, we may make statements about our projections or expectations for the future.

All such statements are forward-looking statements and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance.

You should review our filings with the Securities and Exchange Commission 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.

In addition, we will also refer to non-GAAP financial measures such as adjusted EBITDA, adjusted net income or loss and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website at huntsman.com.

In our earnings release this morning, we reported first quarter 2017 revenue of $2.469 billion, adjusted EBITDA of $329 million, and adjusted earnings of $0.50 per diluted share. I will now turn the call over to Peter Huntsman, our President and CEO..

Thank you, Kurt. Good morning, everyone. Thanks for joining us. Let's turn to slide number 3. Adjusted EBITDA for our Polyurethanes division was $144 million. Our MDI Urethanes business, which includes propylene oxide, recorded adjusted EBITDA of $148 million. We grew our differentiated MDI portfolio by 6% in the first quarter.

We continue to focus on our strategic intent of driving down strength. With our own operating rates being high, we deselected the component business and as a result, while our margins increased, our overall MDI growth was flat compared to the prior year.

In the Americas region, our MDI business grew 3%, with strong growth in our composite wood products as the construction markets remain favorable. Growth in the Americas would have been stronger, but for restricted supply from certain of our third-party suppliers, which occurred during the quarter.

We remain encouraged by the positive economic signs we're seeing in the North America region. Our European business delivered an 8% improvement in differentiated growth, while we deselected component business with favorable trends in the major markets of construction and automotive.

Component sales were down as we managed inventory levels ahead of a planned second quarter maintenance at our Rotterdam facility in the Netherlands. In Asia, strong automotive growth drove a 14% improvement in our differentiated sales compared to the prior-year period. However, total sales growth was limited due to capacity constraints.

We see strong market demand in China and this demand, combined with competitor outages, led to shortages of component materials, leading to a slide (04:47) in prices in the first quarter. During the quarter, our MTBE business reported a loss of $4 million of adjusted EBITDA compared to positive $8 million in the prior year.

The average C-Factor, which is an industry proxy for MTBE contribution margins, decreased to $0.52 per gallon from an already low $0.67 per gallon in first quarter 2016. We expect MTBE margins to be positive as we move into the driving season.

We are in the process of completing our previously announced planned maintenance work at our Rotterdam MDI facility. We expect the economic impact to be roughly $15 million mostly occurring in the second quarter.

Moving into a seasonally stronger quarter, we expect that continued strong positive volume trends and attractive margins will drive sequential EBITDA growth in our Urethanes division. Let's turn to slide number 4.

Consistent with our indication that the fourth quarter represented a bottoming of our EBITDA in our Performance Products business segments, we saw solid sequential improvement in profitability. Adjusting for the European surfactant business we sold in December, results improved $22 million when compared to the fourth quarter.

This sequential improvement was primarily driven by higher amines profitability due to increased volumes and improved contribution margins. Sales volumes improved both sequentially and compared to the prior year through most of our businesses, most notably in our downstream amines, maleic anhydride and surfactant businesses.

Adjusting for the European surfactant business which we sold in December, total volumes in the Performance Products segment rose 10% year over year.

Looking to the next quarter, we believe that the combination of positive trends in the overall volumes, improved amine unit margins and better North American maleic profitability, partially offset by a moderation in upstream intermediate margins will help keep EBITDA relatively stable quarter over quarter.

Heading into the second half of the year, I want to remind you that we have a planned maintenance turnaround on our ethylene oxide and ethylene glycol units in our Port Neches, Texas facility, which occurs once every four years.

As we've stated in the last couple of conference calls, this turnaround will take approximately two months and have a cash cost of roughly $50 million and based on current economics, will impact EBITDA by $15 million. Let's turn to slide number 5. Our Advanced Materials reported EBITDA of $54 million in the quarter.

Volume in the quarter was down primarily due to a decrease in our lower value base liquid resins business, which was partially offset by growth in our higher value differentiated businesses. We continue to see positive trends in our electronics, adhesives, and infrastructure-related businesses, specifically in Europe and Asia.

Our EBITDA margin was lower primarily due to increased costs associated with higher raw materials and expenses associated with lowering our inventory, which we indicated on our last earnings call. Looking toward the next quarter, we expect the combination in volume growth and improved pricing to offset higher raw material costs.

Let's move to slide number 6. Our Textile Effects division continues its positive growth trajectory both in volume and adjusted EBITDA. Year on year segment volume increased 10%, while adjusted EBITDA of 21% this quarter represents its sixth consecutive quarter, year over year improvement.

The business grew 14% in key geographic markets, with Asia leading the way at 12%. We believe Textile Effects is expanding at growth rates that are above the industry average. We've stated in the past that this division is capable of mid-teen EBITDA margin.

In the first quarter, we saw margins improve to 11% and the return on net assets over the last 12-month basis is now 15%, a meaningful improvement year over year.

Looking toward the second quarter, we anticipate a seasonal increase in volume as the second quarter is typically our strongest period for this segment as textile customers begin preparing for the winter season where cold weather fashions typically require use of more of our chemicals and dyes. Let's move to slide number 7.

Our Pigments & Additives division earned $69 million of adjusted EBITDA in the first quarter; $84 million, when adjusted for the fire at Pori, Finland. This represents a significant improvement compared to $15 million in the prior year period.

Our titanium dioxide business earned $47 million of adjusted EBITDA during the quarter, while performance additives earned $22 million. The increase compared to the prior year was attributed to improved TiO2 selling prices and lower fixed cost as a result of our restructuring efforts.

Average selling prices for functional TiO2 continued to increase quarter on quarter on local currency basis. We've successfully raised prices the last four quarters and have captured approximately half to two-thirds of the announced price increases. Demand in the second quarter is generally strongest.

As a result, we expect a capture rate from the announced price increases effective in the second quarter. These price increases vary by region and range from $250 a ton in Europe to $155 per ton in North America. Overall, market conditions remain strong, and we expect additional price capture in 2017 and into 2018.

Our first quarter 2017 sales volumes were impacted by the fire at our Pori, Finland, TiO2 manufacturing facility, which occurred on January 30 of this year. During the first quarter, we were able to sell more undamaged inventory than we had originally anticipated.

We estimate the first quarter EBITDA was negatively impacted by approximately $15 million. Let me remind you that our uninsured business interruption ended in the first quarter. Beginning the second quarter, we expect to be reimbursed by our insurers for all lost margins going forward.

Before sharing some concluding thoughts, I'd like to turn a few minutes over to Sean Douglas, our Chief Financial Officer..

Thank you, Peter. Our adjusted EBITDA increased to $329 million in the first quarter of 2017 compared to $267 million in the prior-year period, pro forma for the sale of our European surfactants business.

The two biggest drivers of this year-over-year improvement in EBITDA were volume and price, which were only partially offset by higher direct costs and the impact from the outage at our Pori facility. Compared to the prior quarter, our adjusted EBITDA increased to $329 million from a pro forma $250 million in the fourth quarter.

The $79 million sequential improvement in EBITDA was primarily driven by, price, which more than offset higher direct costs, and the impact from the Pori outage. Turning to slide 9, we ended the quarter with $1.3 billion of liquidity, an increase of $84 million from year end. Free cash flow generation remains a high priority for our company in 2017.

We have started the year off generating $82 million in free cash flow, including $54 million from insurance proceeds received in advance. This is a solid improvement of $95 million in free cash flow versus the prior-year period, even when excluding the $54 million of insurance payments for Pori.

This improvement was achieved through higher earnings, reduced spending, and a lower net working capital use of cash. We continue to focus on our inventory management, building on the significant improvements made last year.

Our primary working capital spend was $24 million lower versus last year and our capital expenditures of $74 million are $25 million lower as well. We remain focused on strengthening our balance sheet. At the end of the quarter, our net debt to trailing 12-month adjusted EBITDA stood at 3.2 times.

This compares to a year ago when our leverage was at 3.8 times. On April 25, we made $100 million early repayment of debt on our term loan B due 2019, which further deleverages our balance sheet. On April 21, we amended our accounts receivable securitization facilities, which, among other things, extended our maturities from 2018 to 2020.

As part of this amendment, in preparation for the separation of our Pigments and Additives business, we downsized the capacity of the overall program by €75 million. Our expected free cash flow in 2017 will continue to give us opportunity to further deleverage.

During the first quarter of 2017, we recorded income tax expense of $23 million and paid $8 million in cash taxes. Higher earnings in countries with valuation allowances resulted in a low adjusted effective tax rate of 19% in the first quarter.

We expect our long term adjusted effective tax rate to be close to 30%, but our 2017 rate should be lower, likely in the 25% to 30% range. We estimate net overall cash taxes to be close to zero in 2017, given a refund we expect to receive of approximately $90 million in the second quarter.

We have provided you with other estimated key free cash flow components for 2017 on this slide. Please note that this table does not give the pro forma effect for the pending separation of our Pigments and Additives business and approximately $100 million of one-time costs associated with the separation.

In 2017, we expect to spend approximately $380 million in capital expenditures, net of reimbursements.

While our businesses remain focused on working capital and building on the positive momentum we started last year, given our current view of raw materials and expected growth within the businesses, we do anticipate working capital to be a use of cash in 2017. This is consistent with what we said on our last earnings call.

We estimate that pension contributions in excess of pension expense will be higher in 2017 as we increase funding.

Restructuring expenditures should be around $75 million, of which approximately $35 million is related to the new business improvement plan in Pigments and Additives, which we have indicated will generate an additional annualized EBITDA of $90 million by the end of 2018.

Lastly, we have various large scheduled turnaround maintenance projects in 2017 that occur every four to five years, and we expect significant capitalized maintenance costs as well in 2017.

As we sit here today without taking into account the effect of separation of the Pigments and Additives business and assuming our present view of energy and raw materials, we believe our free cash flow generation in 2017 will be greater than $450 million. I will now turn the call back over to Peter for some concluding remarks..

Thanks, Sean. Let's turn to slide number 10 of our concluding slide. We're making good progress in the separation of our Pigments and Additives business, which we call Venator. We announced today that we intend to pursue an IPO of Venator as our preferred path to the separation of our Pigments & Additives business.

When we originally closed on the acquisition of Rockwood in 2014, it was then our intent to integrate this business with our key TiO2 business to form a world-class pigments company and to monetize this offering eventually through an IPO. As the TiO2 market softens, a spin became the most efficient option for separation.

Today, the TiO2 market is rebounding, and we're optimistic looking into 2018. We now believe that an IPO and the follow-on sell-down of Venator shares is the preferred market execution to maximize value for Huntsman shareholders.

It can be done as tax efficiently as it's been with minimal leakage and will allow us to significantly deleverage our balance sheet. Additionally, an IPO will allow us to domicile Venator in the U.K., enabling it to benefit from a lower long-term effective tax rate. Within the next few weeks, we will be filing an S-1 with the SEC.

Depending on market conditions and the registration process, we expect to complete the IPO within the summer months. We have progressed our Form-10 with the SEC, and we'll leave it on hold as a backup plan. Once separated, we estimate that Venator's incremental standalone corporate costs will be approximately $33 million to $38 million.

Huntsman, the remaining company, should see an additional $5 million to $10 million reduction in annual corporate costs post the separation. As we look at the non-TiO2 businesses, I'm more optimistic as I look out over the rest of the year than I was when I gave our previous full-year guidance.

While none of our products are at peak margin, most are strong or in an improving condition. Demand in North America and Europe feel steady, and China has certainly recovered from where it was a year ago at this time.

As I mentioned earlier, we are capacity constrained in MDI and we'll be anxious to get our European MDI plant up and operating following our planned maintenance work. We will be capacity constrained until our new Caojing, China plant becomes fully operational.

This plant will be mechanically complete during the second quarter of this year, and we will be commissioning this facility during the second half of this year. We should be in a position to produce MDI early next year from this facility.

During our last call, I stated that our Performance Products division was expected to see a slow recovery during 2017.

Given the recent trends we are seeing develop, I expect 2017 adjusted EBITDA to exceed 2016, even though we sold off $28 million of adjusted EBITDA with the sale of our European surfactant business and we will have a $15 million EBITDA hit with the planned maintenance closure in the third quarter as part of our Port Neches, Texas facility turnaround.

Given these events and the broader strengthening of our operations globally, we have prepaid a further $100 million of debt this week and are raising our projected cash flow targets for 2017 from $350 million to $450 million.

I still expect all of our divisions to see improved earnings growth this year and we look forward to creating further shareholder value.

Kurt?.

Thanks, Peter.

Mark, will you please explain the procedure for questions and answers and then open the line?.

Your first question comes from P.J. Juvekar of Citi. Please proceed..

Yes. Hi. Good morning.

A question on TiO2, can you describe the raw material situation with ilmenite? And as many producers upgrade their ore, what's going on in synthetic rutile and slag markets? And what's your current ore mix?.

Thanks for the question, P.J., it's Simon here, I'll take that question. I think as we spoke about on our previous call, we continue to see ilmenite prices increase, particularly in China. We see recent announcements by ore vendors of signs of improved demand growth both now and later in the year.

We have a range of contracts, as you know, a whole range of contracts on our sulfate ilmenite. So we believe we're well positioned. On high-grade ores, it's clear that major producers think slag prices will start strengthening in the second half of the year, and we're already seeing high-grade rutiles starting to increase on a quarterly basis.

So it's pretty consistent with what we said last time out, stronger demand, expected price headwinds coming from ores. We're going to feel some of that in the second half later in the year and we feel we've got a good position on our contracts. And in terms of the mix, there's no change to our mix that we've had for these past two or three years..

Thank you. And Peter, in Advanced Materials, it seems to be underperforming here. And volumes declined, margins have declined by 260 basis points. So what do you need to do here to turn this business around? Thank you..

Well, I'm not sure, P.J., that I would agree that Advanced Materials is declining as a business or losing any of its profitability. The business will be a little bit lumpy depending on aircraft orders and depending on some seasonality with the business around construction and so forth.

We did have some unusual costs in the first quarter that were one-time, unrelated to the reduction of inventory that we took at the end of last year that came into the first quarter. I think that we talked about that being somewhere between $4 million to $5 million.

But if I look at the overall business, as we look at our downstream business and the continued growth in that business, we certainly aren't losing out on any of the aerospace customers. I don't see the margin there falling. I don't see – I'm not aware that we've lost any of our customers.

And I think that as we look at the overall business this year, we should see growth this year over last year in the business. And I think as we look at the first quarter, as we said on our last conference call, we will be down a little bit in first quarter compared to a year ago, but I think we make that up throughout the year..

Okay. Thank you..

Thank you..

Your next question comes from Aleksey Yefremov from Nomura. Please proceed..

Good morning. Thank you.

Could you give us any idea, some idea about EBITDA contribution from the China MDI plant startup? And also, will there be any startup costs affecting Huntsman's EBITDA in the second half of 2017?.

I don't believe that there will be any startup costs during the second half of 2017. We might see a little bit early next year. That's just totally unrelated. It's just very difficult to try to project that now given the fact that the plant's just in the process of being mechanically completed. We got six months of commissioning to go here.

As we look at the next year at the impact of that facility, I expect that we'll probably be somewhere between $75 million to $95 million of EBITDA this next year, in 2018, assuming that the plant starts up on a timetable that we have planned at this point..

Thank you. And also on MDI, would you expect MDI unit margins in the U.S.

and Europe to continue improving in the second quarter and also in the second half of 2017?.

We see the market as such that there will be gradual improvements in pricing and product. Product for us is particularly tight. We're presently buying product from competitors to resell to some of our customers. And until we have this new facility coming on, we're going to be constrained in our capacity.

So it feels, I would imagine right now that globally, MDI capacity has an effective operating rate of probably better than 95% utilization..

Great. Thank you very much..

Your next question comes from Kevin McCarthy from Vertical Research Partners. Please proceed..

Yes, good morning. You increased your free cash flow goal by about $100 million to more than $450 million. If I look at slide 9, the line items there seem to me to be largely unchanged with regard to CapEx, net of reimbursements, restructuring and pension. I guess, cash interest is $5 million better.

And so my question is, if I look at that increase in your free cash flow goal, is the vast majority of that meant to signal EBITDA improvement in 2017 versus 2016?.

Yes, it is..

Okay. Thank you for that..

Thank you..

And then one other question if I may. On your Polyurethanes segment, I think you indicated that you expect to grow earnings sequentially.

If you take into account improvement in the C-Factors sequentially, do you think you can grow earnings on a year-over-year basis as well in that segment?.

Yeah. So you're talking just MDI.

You're talking about all of Polyurethanes?.

Yeah, I'm asking about your EBITDA outlook for the Polyurethanes segment as a whole in the second quarter..

Yes. I would say that, that as we look at it from a year ago, it ought to be, I'd say, it'll be up slightly from last year..

Okay. Thank you very much..

The next question comes from....

And just – you know what, I just want to make sure that, that last question, you had talked about, that would assume that our C-Factors would be lower this year than last year. And so, we would expect that improvement to take place in the urethanes MDI, things other than MTBE..

Your next question comes from Hassan Ahmed from Alembic Global. Please proceed..

Good morning, Peter..

Good morning, Hassan..

Peter, recently, one of the sort of relatively well-respected consultants within the TiO2 space, sort of sounded a pretty negative tone with regards to sort of Chinese TiO2 inventory levels, rising ilmenite inventory levels, sort of rising operating rates in China. Just, I'm sure you may have come across that report as well.

So just wanted your thoughts with regards to what may be going on in China in particular..

I won't comment on the report, because in all honesty, I don't know which report you're talking about. So, I typically don't read TiO2 consultant reports, because....

I don't blame you..

I struggle to try to reconcile them to markets, but - So as I look at China today, I don't see anything unusual, I don't see anything – doesn't feel like there's a great deal of product that's coming out of China. There's a great deal of – that's beyond normal.

I guess, I don't see anything that's impacting the markets unusually at this time because of some – anything unusual going on in China at this time.

Simon, do you see anything on a day-to-day basis?.

Yes, Hassan, I think we said on our last call of what we see, we continue to see a nominal amount of increase of exports into the broader Asia region, consistent with what we said in the past. We continue to see some operators constrained by governmental strictures. We continue to see some rising ilmenite prices.

But I would like to point out that regional Asian prices of TiO2 are among some of the highest in the world right now. So we still continue to see price increases in that region..

Very helpful. Now, carrying on with the theme of the pricing side of things within TiO2, as I take a look at your sequential pricing moves, it seems that TiO2 prices or the Pigment segment prices were up 2%.

So, just wanted to sort of reconcile that with the $300 per ton sort of price hike that was announced for January, was most of that realized, was it partially realized? I mean, any sort of thoughts around that would be appreciated..

Yeah, let me speak to that a little bit. And first, I have to correct you to say, we didn't have a $300 a ton price increase on the 1st of January. We have been – before quarter two of this quarter, we're now announcing pricing increase of the range of $150 a ton.

And we've been saying consistently that we think capturing half to two-thirds of that amount. In the first quarter, if you adjust for FX, which – there was quite a move against our largest major – our major market of Europe, underlying, we see about half of that $150 price capture on an aggregate global basis..

Excellent. Thank you so much, Simon..

Your next question comes from Frank Mitsch from Wells Fargo Securities. Please proceed..

Hey, good morning, gentlemen. Obviously, nice momentum here on the TiO2 front, just had a couple of questions.

On the Venator IPO, what would be your expectation in terms of the percent share that Huntsman would retain following the initial public offering?.

I'll give you an idea on that, Frank, but I've been cautioned by lawyers to not get out over my ski tips here and it's really tempting. But I – a lot of that too, as you well can imagine, is going to depend on the strength of the market and how we're looking at the time at a number of different variables and so forth.

But it will – probably, I'll just keep it at that. Okay..

So my follow-up in terms of how much would you expect to deliver is pretty much a dead on arrival question, I guess, from that IPO?.

We expect to use the vast majority, if not all of the proceeds, to delever and we'd like to do that as effectively and as efficiently as possible..

Got you, got you. You did mention very strong demand or strong demand in Polyurethanes in China in Q1.

Can you talk – can you add some metrics around that in terms of percent changes? Or – and where does that head as we work through April and into May here?.

Well, again, our – it's kind of a tough one for me to answer, Frank, just because – I'm speaking just of Huntsman, I don't want to talk about our competitors. But as I think of our own business, we were pretty flat just because we're so constrained on product and we're selling everything we can produce.

And what we – with any excess materials that we have around the world, we're shipping to Asia. But as we look at the Asian market, we think that the overall market there is growing at about 8% during the first quarter year over year.

So – and that's, we were sitting here a year ago at this time, I think, we were probably talking 1% to 2% growth as we were looking out a year ago at this time. So, certainly, a significant turnaround and a broad base in most of our downstream applications in MDI in China..

Extremely helpful.

And that expectation of that upper single digit growth continues in Q2?.

Yes..

Thank you..

Your next question comes from John Roberts from UBS. Please proceed..

Thank you. I think it was mentioned that your Chairman is on the call today (35:32) (35:33).

Pardon?.

...press reports about the comment.

Could you comment – could you clarify the press reports about the comments made in San Antonio last month?.

The comments about? I'm sorry, you broke out in the middle of your question..

Sorry. Yeah. Let me ask it again. I think you mentioned that Jon Huntsman, Sr. is on the call with you today.

Could you clarify the comments or clarify, at least, the press reports about your comments in San Antonio last month?.

Yeah, let me just comment on those.

As we look at various options as a company and we look at where we are going as we move the company forward, I'm talking about on a post spin, post-IPO basis, we think that with the equity value that we are seeing in our company and a stronger value that we're seeing on a per share basis, that a possible merger of equals with another company in the industry would certainly be something that we would explore and entertain.

And I think that, that was part of the broader comment that was made around our macro strategy as the company, and certainly, is not the only thing that we're looking at, but it is something that we would be more open to today than perhaps in the past..

Okay.

And then how should we think about the seasonality in the TiO2 EBITDA? Should we think about the current quarter as the seasonal peak for the year? Or do you think the seasonality can be offset by continued cost improvement and price improvements, et cetera?.

Well, John, it's Simon here. We still see the quarter we're in right now, quarter two as the seasonal peak quarter of 2017. As to the point about offsets and so forth, I think we made the point that we continue to see price improvements through 2017 and into 2018..

And how much seasonal loss that do you think we'll see in the back end of the year as we come off the current strength?.

At this point, I don't think we'd have any reason to depart from what we've seen historically on that – the quarter three drop into quarter four. We get typical drop of about 10%..

Thank you..

Your next question comes from Laurence Alexander from Jefferies. Please proceed..

Good morning. This is Dan Rizzo on for Laurence.

Including the outages and considering the sequential trends, should Q2 EBITDA still be up year over year roughly the same amount as Q1 was?.

Let me just take a look at that. Yes, I'm not sure – I'm just looking at some of our numbers of last year and this year and what we're looking at. I'm not sure that I want to get that sort of clarity, that sort of granularity in projecting Q2 at this point. I think I'd probably best just avoid that..

Okay.

And then, is the $90 million tax refund going to be excluded from Q2 as an extraordinary item or is it factored into the bridge to $450 million in free cash flow?.

So definitely, the $90 million of expected proceeds from that tax refund is included in that cash flow on slide number, I think, it was slide number 9. And as we received, obviously, that'll be recorded into the tax account in terms of net taxes on the balance sheet and income statement..

Okay. Thank you very much..

Yeah. And this is something we had also commented last quarter on. So this isn't an increment, this is something we've already talked about..

Okay, okay. Thank you for the clarification..

Your next question comes from Robert Koort of Goldman Sachs. Please proceed..

Thanks. I had two, if you don't mind. Peter, I was wondering if you could talk about your exposure to the Mexican MTBE market. I see there's some fuels advocates pushing for more ethanol there which might squeeze out MTBE.

So any thoughts on that or what your exposure is? And then secondly, for Simon, just curious about the approach to pricing on this TiO2 cycle, if, seeing it as a commodity, you try to make hay while the sun's shining and get as much price as you can or, based on the sort of vicious upcycle and downcycle from a few years back, is there a little more diplomacy do you think in the industry towards customer relations and the rate of price ascent? Thanks..

Rob (sic) [Bob] (40:35), as far as MTBE in Mexico, I think that as we look out over the course of the next year, we don't see any change in demand. There has been some movement afoot, not necessarily around MTBE supply or demand, but more around ethanol and what impact that might have.

And, yeah, I think it's just a question of educating the public on how massively superior MTBE is to an ethanol product. So I think that over the course of the next year, I don't see that as being a material issue for us..

Bob, it's Simon here just to answer the second part of your question. What we've seen and continue to see is a consistent pattern of pricing displayed by ourselves. Clearly, we're not going to talk on behalf of other producers.

But as you inferred last time out, back in 2011, there was a pretty high slopes (41:41) of pricing went through in a very short space of time and stimulated some demand destruction and the relationships of our customers were testing, to say the least.

I think that some of these larger customers have been quite public recently to point out that, as we sit here today, commodity TiO2 prices are still lower than they were two years ago at this time and they're way, way short of where we got to in 2011. So I think that there's a kind of like a manageability aspect of this for the consumer.

And while they never welcome price increases, they can manage this. And that's what we intend to do, is continue with this pattern of pricing to get the most volume of our products in this higher operating rate environment..

And I know in the past, you talked about some elevation in pricing through 2017 and then maybe either flatlining or not having the visibility to take a guess beyond that.

Is there a reason you wouldn't expect pricing to continue to rise for the foreseeable future?.

No. We believe that prices will continue to rise for the foreseeable future..

Terrific. Thank you very much..

Yeah. I think, Bob, just for clarification. In 2018, I think that in the past, typically, we would try to avoid making forecasts a year out – over a year out into the future as far as pricing and so forth.

I want to make sure that we're not in any way saying that we think that TiO2 pricing somehow peaks or plateaus in 2017 as much as I just don't want to see us get out over our ski tips, if you will, as far as trying to talk about pricing over a year out in the future..

Yep. Understandable. Thank you..

Your next question comes from Jeff Zekauskas from JPMorgan. Please proceed..

Thanks very much. I think you took $36 million in restructuring charges in the quarter.

Were they located in one principal segment? Or if you had to allocate them across your segments, how might you do that?.

Yeah. Those are largely related to the Pigments and Additives business, with a little bit also coming in from our Textile Effects business..

And what are you doing in Pigments and Additives? Why are you taking such a large charge?.

In Pigments and Additives, as you recall (44:16) we have the $90 million improvement plan. We spoke about the phasing of that and most of that will be in our numbers by exit 2018. So, there obviously is a disconnect between when you get the benefits and when you spend the money.

And we've had two fairly high profile plant closures announced these past six months in South Africa and Calais white end France and that's where the majority of those charges will be taken..

I see.

And if I understand your Pigments and Additives slide correctly, your sequential change in price in Pigments and Additives was basically flat, is that right, it was up 1% in local and down 1% from FX? And if that's a correct reading, what do you make of there being so little change from the fourth quarter to the first quarter?.

Sorry, could you repeat the last part of the question there?.

Sorry. In the Pigments and Additives slide....

Yeah..

...you have that table, and it says local price quarter on quarter up 1%, which I think that's a sequential quarter, right? And then the FX price is down 1%. So what that would mean is that, first quarter prices and the fourth quarter prices were basically flat.

And if that's true, why might that be the case?.

Well, I think that if we go back to the fourth quarter pricing we had – we spoke about half to two-thirds global average pricing, we covered that on our call then and that's what we achieved.

So I'm not sure about the flatness in fourth quarter, although I would remind people that there was not an increase in North America in that particular quarter which obviously, reduced our overall price capture globally. So I think we dealt with that on our fourth quarter in the United States.

And in our first quarter, I think I mentioned to an earlier question, we made significant progress on our price capture on our local prices, particularly in our major market of Europe. But obviously, on translational effects with the currency, that washes down to a very nominal percentage increase in dollars at the aggregate level.

We think about the underlying dollar increases around half of our announced price capture, on an average basis..

Jeff, this is Kurt. I'll just add to that. So often when we think about Pigments and Additives business, we only think about functional or commodity TiO2.

And as you know, we also have this great, stable, complementary Performance Additives business, as part of this division as well and so that's having an effect on the pricing that you're seeing there. I'd also point you to that last row on the table, where we've done a pro forma adjustment for the impact of Pori as well.

And you see a little bit more of the price movement when you take a look at that 2% up on a local currency basis..

So I guess, just two more things, briefly. So I think, Peter in the early part of the call talked about the tightness in MDI just about everywhere. And what's happening now is, benzene prices, at least in North America, are falling.

So all things being equal, do you think you can capture more margin going forward because of the raw material decreases and the industry tightness?.

I would say that it's more about industry tightness than it is raw materials. You can capture month-to-month movement – barge-to-barge benefits on raw materials, but margins for the most part are a function of supply and demand.

And I think that as we look at that, those issues, that's going to have a much greater impact on long-term margin and as we look at margins out quarter to quarter, the tightness in MDI with the large competitor here in Europe, declaring a force majeure recently and some of the other movements that we're seeing in the industry, I think it's going to be fairly tight here for the next couple of quarters..

Okay. And then lastly, in the old days, you were kind enough to give us the unadjusted EBITDA for each of the segments and then the adjusted EBITDA. And you don't do that any longer. And the adjustments in the quarter are $77 million, which is a large percentage relative to either your unadjusted EBITDA or to your adjusted EBITDA.

And so, I guess, I would just register a vote for the way that you used to present things in the old days..

Well, as you said, we were kinder in an earlier day and age, and so, that might have something to do with it. So, I will so note it and we'll certainly take a look at that..

Okay. Thank you so much..

Your next question comes from Jim Sheehan from SunTrust Robinson Humphrey. Please proceed..

Hi. This is Matthew Stevenson on for Jim.

Can you elaborate on the reasons behind the shift in Pigments separation strategy? And was it connected to tax issues involving potential merger of equals?.

No. I think that it's – I mean, tax is certainly a factor, but it's not the factor. I think that as we look at – our intent all along was to be able to monetize as much of our equity and the value that we have in the Pigments group.

And as we look at – be able to monetize that at a point in the TiO2 cycle what we would consider to be kind of a normalized EBITDA, normalized sort of run rate.

And I think that as we look at the overall profitability of TiO2, it has returned sooner than we would have expected six months ago or three months ago even to what we consider to be a normalized – kind of a more of a normalized sort of run rate.

We're not there yet, but I think that given the price increases and so forth that we see out on the horizon and the strength in the market, we think that starting this summer and moving in through throughout 2017 and into 2018, and throughout 2018, I think that these are going to be fairly decent times for us to be able to monetize our interest in the business.

And so, we have both of those options before us. And right now, as we take a snapshot, the IPO is, I think, materially better option for us and for our shareholders..

Understood. Thank you. And then in your 4Q presentation, you had forecast $75 million of annual EBITDA improvements in your Pigments and Additives business during the period of 2017 through 2019.

Has your forecast changed since then? And do those figures include the $33 million to $38 million of standalone corporate costs that you showed on slide 10 of this year's – of this quarter's deck?.

Yeah, Matthew, I think we – you're correct. We initially stated in January a $75 million business improvement plan over 2016 baseline, and we parsed that out in its constituent parts. We subsequently adjusted that upwards to $90 million, because we announced the intention to close our Calais, France white section.

And those numbers do not consider the announced $33 million to $38 million costs that was included on our materials today..

Thank you..

Thank you..

Your next question comes from Mike Sison from KeyBanc. Please proceed..

Hey, guys. Nice quarter.

Can you hear me?.

We can..

Hey, Mike..

Yeah. Sorry about that. One quick question, just what's the SG&A hit for Ivan? No, I'm joking. But in terms of TiO2 for longer term, I think you've talked about maybe the EBITDA potential or normalized EBITDA somewhere in that $400 million or so.

Given what you see now, what needs to happen over the next year, or a couple of years to sort of continue on that ramp? You had really nice progress there in the first quarter..

Yeah. And we've been quite public for some time about $400 million normalized, which implies that we would expect to be going over and above that number as we advance our momentum in our TiO2 segment. What has to happen, while we expect to continue improving our pricing – prices and not giving up margin, we've been quite open about that.

But also we have to continue to deliver on opportunities we identify like the $90 million improvement, which we will do in the timeframe that we've stated and those are the key areas along with improving the quality of our specialized business and our stable and complementary Additives business..

Great. Thank you..

Thank you. And I would just note that Ivan's compensation barely was under the materiality threshold. So we don't have to disclose that..

I appreciate that..

And your last question comes from Roger Spitz from Bank of America Merrill Lynch. Please proceed sir..

Thank you. Good morning.

First, can you talk about, which amines product lines are seeing the competition you called out? Is that still the Chinese polyetheramines new capacity?.

I would say that that that is certainly the majority of it. Yes, 75% of it, yes..

Okay.

What would be the rest of it? Or is it just other amines like ethanol amines or something?.

No. In the last couple of years, amines have generally been strong. They have been outside of the PEA market. There have been other amine expansions and so forth that have taken place as would be expected when margins get above what they are normally operating at. And so, yeah, I'd say, most of it is PEA and it's just dribs and drabs of others.

And when I look at our amines section, I'm looking at literally scores and scores of different products and blends and different products and price points and so forth. So kind of tough to break it out in a mean product by product basis..

That's fine. And the wind energy competition that you pointed out.

Is that more from perhaps Chinese epoxy competitors? Or is it perhaps the other large Western epoxy competitors or a combination of both?.

I think it's a combination of both on that. The wind is certainly a global market. You're seeing blades moved all over and you're seeing raw materials move all over the world and that's an end of the epoxy markets. I think we've said in the past that we look at it as an end that is commoditized.

It still is an end that we're committed to and we're going to continue to supply segments of the wind market. But it certainly has more competitors in it than it did a couple of years ago..

Thank you very much..

Thank you..

I would now like to hand the call back to Kurt Ogden for closing remarks..

Thanks, Mark. We want to thank everybody for joining us on the call today. Ivan, Nooshin and myself are available for additional follow-up questions. If anyone wants to, has any, feel free to reach out to any member of the IR Team. Thanks again..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day..