Welcome to the Huntsman Corporation Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Ivan Marcuse, Chief of Investor Relations. Thank you. Please, go ahead..

Thanks, Donna, and good morning, everyone. Welcome to Huntsman's fourth quarter 2019 earnings call. Joining us on the call today are Peter Huntsman, Chairman, President and CEO; and Sean Douglas, Executive Vice President and CFO.

This morning before the market opened, we released our earnings for the fourth quarter 2019 via press release and posted to 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 SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter.

We will also refer to non-GAAP financial measures, such as adjusted EBITDA, adjusted net income 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, huntsman.com.

I would remind you that on August 7, 2019, Huntsman announced the sale of its Intermediates, Chemicals and Surfactants businesses to Indorama Ventures and later closed it on January 3, 2020.

In accordance with GAAP, these assets and liabilities are reported as held-for-sale on our balance sheet and results of operations reported as discontinued operations on our income statement.

Therefore, the results we have highlighted in our fourth quarter and full year 2019 ended December 31 earnings release and we will discuss on the call, are for continuing operations of our business. I will now turn the call over to Peter Huntsman our Chairman, President and CEO..

Good morning, everybody. Thank you, Ivan. Thank you everybody for taking the time to join us today. Let's turn to slide number three and four. Adjusted EBITDA for our polyurethanes division in the fourth quarter was $122 million versus $141 million a year ago.

Consistent with last quarter, our results now exclude our North American propylene oxide and MTBE business that was sold together with our Chemical, Intermediates and Surfactant businesses to Indorama Ventures on January 3 of this year.

Our continuing operations for our polyurethane division are now nearly entirely comprised of MDI-based formulated systems, elastomers, and MDI components. MDI volumes in the quarter were up 6%, primarily due to higher volumes in China, resulting from our expansion that was running at less than full rates a year ago in the comparative period.

In addition, we saw some favorable comparison in certain product lines versus the fourth quarter of last year, as well as some market share gains. While our downstream margins remain relatively stable, consistent with our prior quarter, we continue to experience some pressure on polymeric and component margins.

In addition, volumes in certain markets remain depressed, which pressured overall profitability. Regardless of short-term challenges, we are committed to our strategy of investing in our downstream businesses as well as product innovation. We are confident that the positive long-term trends for MDI urethanes around product substitution remain intact.

In the fourth quarter, our total global differentiated systems volumes increased 7% compared to last year and our global component MDI volumes grew 5% year-over-year, due to favorable comparisons and some new business wins, specifically in Asia and in the global scale-up of our spray foam business.

Overall business conditions in the fourth quarter remained challenging with global manufacturing conditions facing continued headwinds, particularly in Europe.

Looking at polyurethanes globally in the fourth quarter, our Americas volumes were up from the prior year, primarily due to growth in our insulation businesses and favorable comparisons to our composite wood products business.

Softer volumes in our higher-margin ACE or our adhesives, coatings and elastomers, and footwear businesses were offset by higher volumes in lower-margin composite wood products businesses. We continued with our project to build a new splitter in Geismar, Louisiana, which remains on track and is expected to be functional by the end of 2021.

As a reminder, this investment will help us to support and further grow our downstream businesses in key markets in the Americas such as automotive and elastomers. Also, our recently announced acquisition of Icynene-Lapolla, remains on track to close in the first quarter of this year, could possibly close as early as this month.

When this acquisition is completed, we will immediately start to integrate this business with Demilec, our existing spray polyurethane foam business that we acquired in 2018. We expect the combined business to have EBITDA margins in excess of 20% once fully integrated and be a leader in this high-growth market.

Additionally, our push to take our spray foam technologies into international markets will continue to be another source of growth for this business. We look forward to the prospects of this business for years to come due to the competitive advantages our spray foam has over alternative installation products.

This is a perfect example of the size and type of acquisition, which we hope to do more of and not only in Polyurethanes. Turning to the Asian region of Polyurethane, volumes were being helped primarily by insulation growth across several applications as well as growth into the adhesives, coatings, and elastomer and footwear markets.

While overall volumes are higher in the fourth quarter, the environment in the region remains very competitive and polymeric margins are under pressure.

Having brought on new capacity in August 2018, we are focused on what we can control and taking our component and less differentiated polymeric system volumes in the more stable and high-margin downstream products. We have made and continue to make significant inroads into Asian ACE and automotive markets.

An example of this is our recently being awarded seating business in the new Teslas being built in China. In the near term, the situation around the coronavirus in China is having an immediate impact on our business in this region. Anything that we say today will likely be outdated by events in the next 24 hours.

Some areas of China, we've seen cities and regions and post closures and restrictions of movements while other areas are reopening. Workforces are barely getting back to work, while transportation and logistics are significantly challenged. We are being forced to slow production at our MDI facility in Shanghai and our TPU plant in Jinshan.

Short-term visibility is difficult not knowing how long or how widespread the effects of this pandemic will remain. However, we see this as a short-term matter and expect business to resume unimpaired once this matter is under control.

We sit here today, we expect to have a noticeable impact on our first quarter EBITDA, but hope that it will be contained to the first quarter. We shall see.

In Europe, our volumes in the region were slightly up, but the overall macroeconomic environment remains increasingly soft, and we do not see any convincing signs in the near -- for near-term improvement. Margins are being impacted by an increasingly competitive environment in component and polymeric systems.

Including polymeric systems, the margins of our differentiated business remain relatively stable, despite the weaker conditions in the industrial and automotive markets.

Our overall strategy to grow our downstream urethane business through strategic investments like our splitter and new system houses will continue and will be complemented by attractive bolt-on acquisitions, having strong synergies and compelling financial metrics, which is our recent announcement to acquire Icynene-Lapolla demonstrate.

We have a high degree of confidence that we will continue to find other similar attractive strategic opportunities that will further accelerate our move to a higher quality downstream business. Our urethanes portfolio was unique and a world-class franchise that will only get better as we further accelerate our downstream growth.

The positive long-term fundamentals for MDI remain intact, well above GDP growth,driven by product substitution, it will continue for the foreseeable future. For the short-term, the demand and margins in component and polymeric systems remain challenged, specifically in Europe and Asia.

With very little visibility, we expect first quarter results in this segment to be down when compared to the prior year. With the year starting off on this weak note, we suspect that it will be difficult for us to improve much on last year's results. Let's turn to slide number 5.

Our Advanced Materials business reported adjusted EBITDA of $42 million, a decrease compared to last year's EBITDA of $48 million. The decline in adjusted EBITDA was driven by 9% lower volume in the quarter. Our specialty end of the portfolio performed better than the overall segment average.

As we stated in our last earnings call, roughly 40% of this segment's revenues are in Europe and in large part tied to manufacturing end markets. Throughout the third and fourth quarter, PMIs in this region were either contracting, most notably in Europe or stagnating.

The softness in these indicators were evident in the results throughout the second half of 2019 as the automotive, construction and industrial markets remain weak.

It's important to note that despite the volume headwinds, the Advanced Materials business continues to show margin resilience due to the high-value specialty and formulated nature of the portfolio. We are confident in the long-term growth potential of this business and are investing in new products and innovation to expand the portfolio.

Additionally, there are certain bolt-on acquisitions that we are considering. Regardless of the near-term challenges, Advanced Materials remains a core platform for both organic and inorganic investment enhancement.

Looking forward, although, not a major part of our Advanced Materials portfolio, the impact of the current situation in China is not certain. Furthermore, I expect the challenges in the aerospace sector are likely to remain in 2020.

However, we're seeing some signs that the worst is behind us in our industrial business and we expect to see sequential improvement in the first quarter versus the fourth quarter as well as modest growth for the full year. Turn to slide number 6.

The Performance Products segment reported adjustment EBITDA of $43 million compared to $39 million in last year's fourth quarter with our Chemical Intermediates and Surfactant businesses now being reported as discontinued operations. This segment is now largely comprised of our amines and maleic anhydride businesses.

The divestiture of the upstream and intermediates business now provide us a renewed and much more simplified focus on these solid businesses. There will be good opportunities to grow our amines business and take our maleic anhydride business further downstream.

Total segment volumes were down 4% versus the prior year, driven primarily by weaker end market demand in ethylene amines and maleic, partially offset by growth in our performance amines portfolio.

In performance amines, our polyurethane catalyst continues to show growth in the markets that are looking for low VOC solutions such as spray foam, automotive, and furniture.

We intend to further invest in this business over the coming years in order to keep pace with market demand as well as support growth and product innovation with our existing customers.

While soft market conditions in the North American unsaturated polyester resin and across most of the European markets put some pressure on volumes for our maleic anhydride business, the overall margins remain relatively stable. For the first quarter, we expect overall market trends to remain unchanged.

We expect first quarter EBITDA to be near last year. Although we expect to see growth in our specialty amines because of softer markets in maleic and ethylene amines, for the full year 2020, we expect total Performance Products EBITDA to be around 2019 levels.

Moving to slide number 7, our Textile Effects division reported adjusted EBITDA of $18 million for the fourth quarter, down from the prior year. Total volumes in the quarter were modestly down by 1% year-over-year, but up 2% from the prior quarter. This is evident that the destocking has largely bottomed out.

Our specialty end of portfolio grew 3% year-over-year. Demand for our ecofriendly products market-leading technologies continue to gain traction with our customer base. We fully expect that these trends will continue for the foreseeable future. Before the onset of the coronavirus, we were hoping to see the beginning of some restocking.

However, this is yet to be seen. Our own year-end inventories are the lowest that we have ever managed. Uncertainty in China around trade and more recently the coronavirus, gives us a low level of visibility in the near-term.

Yet with order patterns beginning to normalize and our specialty business growing, we would expect this business to return to growth for the full year of 2020. With our global footprint, we expect to be able to capture the dynamic shifts in the supply chain that we have been seeing over the past year.

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

Sean?.

Thank you, Peter. Turning now to slide 8. Fourth quarter adjusted EBITDA dropped by $25 million year-over-year. Strong volumes in our Polyurethanes segment offset weaker volumes in all other segments. Variable margins declined largely due to weaker margins in component MDI.

We faced some translational-related foreign exchange headwinds as both the euro and the yuan most modestly weakened year-over-year. Turning to slide 9, we concluded 2019 with another very strong free cash flow year.

The fourth quarter was stronger than we had anticipated at the time of our last earnings call due to a larger working capital release and due to the timing of payment of certain taxes which have been passed into 2020.

Throughout 2019 we also enjoyed a onetime benefit of approximately $70 million from collecting past due foreign VAT taxes pertaining to years prior to 2019.

As previously shared with you, given our portfolio of businesses post the sale of our Chemicals Intermediate and Surfactants business, we expect a normalized targeted free cash flow conversion rate of approximately 35%.

This excludes the capital required for the construction of our new MDI splitter at Geismar, Louisiana which is expected to be completed by the end of 2021.

The total cost of the splitter is estimated to be approximately $175 million of which approximately $15 million was spent in 2019, $80 million which will be spent in 2020, and the remainder in 2021.

Taking into consideration this projected spending on the splitter plus the deferral of certain taxes into 2020 and payment of certain transaction expenses related to the sale of the business to Indorama that will pay out in 2020, we expect our free cash flow conversion 2020 to be between 20% and 25%.

Including the new MDI splitter, we expect to spend between $300 million and $325 million in capital expenditures in 2020. With respect to working capital, although, we benefited from contracting working capital due to lower prices and a bit softer environment, our inventory and accounts receivable metrics were very similar to the prior year.

We did see a slight improvement in our payables metrics. We continue to proactively manage working capital and expect to maintain similar working capital metrics in 2020. We expect a meaningful seasonal build in working capital in the first quarter, especially, in light of the lower-than-anticipated levels this past year-end.

As a reminder, in the first quarter of 2018 and 2019 primary working capital increased by approximately $150 million and $100 million, respectively. We completed the sale of our Chemicals and Intermediates Surfactants business on January 3, 2020 and received approximately $1.93 billion in cash.

In addition to the cash receipt, we transferred to the buyer approximately $72 million of underfunded pension liabilities. With respect to the $1.93 billion of proceeds received in January of this year, we have paid down prepayable and revolving borrowings in the amount of approximately $170 million.

Given the high make-whole premiums on outstanding notes, the case is not compelling to reduce such other borrowings at this time. We expect to pay just under $400 million of taxes this year solely relating to the sale of these assets. Just as a reminder, a portion of the gain on the sale of this business is a capital gain.

We expect to be able to use future losses on the sale of our remaining shares in Venator when sold as an offset. There is a three-year window in which to roll-back such losses. Given our basis in the Venator shares if all shares were sold at $8 per share or less, we would estimate the net tax cash benefit to be approximately $150 million.

In the fourth quarter we have recorded a deferred tax asset relating to this. To be clear the tax benefit will only be available upon the sale of our shares in Venator at a loss. Further with respect to taxes our adjusted effective tax rate for the quarter was 25%.

This is a bit higher than our stated expected range of 22% to 24% largely due to the global distribution of income in the fourth quarter. We still expect the annual adjusted effective tax rate going forward to be between 22% and 24%. I would like to point out that our corporate and other expense for 2019 was lower than 2018 by $16 million.

This was largely influenced by higher LIFO benefit in 2019 as well as by reduced overall corporate spending somewhat influenced by our heavy focus on the divestiture of our Chemicals and Intermediates business. We would expect corporate expense to return to more normal levels in 2020 approximating between $43 million to $45 million per quarter.

In concluding my comments Huntsman has not in its history had a stronger balance sheet and a better platform of businesses. We are less than 0.5 times levered pro forma for the net proceeds from the sale of the Intermediates business. We expect to be closing soon on the purchase of Icynene-Lapolla for a purchase price of $350 million.

If we were to close on this by the end of the first quarter, this would add an additional approximate $25 million to $30 million of EBITDA to the remaining nine months of the year. We have demonstrated year-after-year consistent strong free cash flow. We have shown discipline and a balanced approach to capital allocation.

Since the beginning of 2018, we have opportunistically purchased nearly $0.5 billion of shares at an average price of $23.50 per share representing nearly 10% of our market cap. And we maintain a competitive dividend. We are committed to maintaining our investment-grade balance sheet growing our business and creating value for our shareholders.

Peter, back to you..

Thank you very much, Sean. While macroeconomic conditions particularly in Europe and Asia were a bit less than I would have expected this past year, I still look at 2019 as being a success for Huntsman. First, we were able to successfully sell our upstream Chemicals Intermediates and Surfactant business for $2 billion.

This transaction has allowed us to fundamentally change our business. Beginning with our balance sheet, we are carrying less than 0.5 turn of EBITDA -- of debt. Our company remains committed to investment-grade statistics, while protecting and maintaining a competitive dividend.

Having this as our foundation the obvious question is, what are we going to do with this cash? I think it is best to look at our recent actions to get some insight. This past year we repurchased $208 million in stock. This represents about 5% of our total share count.

Let me repeat what I've said in the past, we will buy shares based on our share price our multiple, our economic outlook and alternative uses of capital. In addition to our share buyback, this past year we also paid out $150 million in dividends to our shareholders.

We will continue to assess this amount to make sure it is both competitive and consistent. As I mentioned earlier, we continue to expand our ability to convert more of our crude MDI in Geismar Louisiana to more valuable formulated systems. While not adding more MDI volume it does add more MDI value.

Additionally, we opened another downstream system housed in Dubai to enhance our position in this region. As a reminder of our 30 MDI consuming system houses around the world, we have built 17 and acquired 13. We will continue to review internal expansion opportunities so long as they justify an attractive hurdle rate.

By and large, I am not a proponent of large capital projects that add excess volumes. I believe that our greatest focus is going to be on our M&A opportunities.

At the same time that we were selling, our upstream Chemicals Intermediates and Surfactant businesses we also repurchased – or also purchased the remaining 50% of our maleic joint venture making us the largest and lowest-cost North American and European producer of maleic anhydride.

Perhaps the best example of our M&A strategy is the upcoming completion of our polyurethane spray foam acquisition of Icynene-Lapolla. I expect it to be closed in the next week or so. This acquisition will be combined with our existing spray foam business called Demilec that we purchased less than two years ago in April 2018.

The LTM EBITDA when we closed on this business was approximately $25 million. In the calendar year ending 2019, we earned approximately $45 million. We turned a mid-teen purchase price multiple into an under eight times multiple within 18 months. With Icynene we will turn a 10 times multiple into a 7 times multiple within 18 months.

As we merge all of these businesses by the end of 2021, these two businesses will add an additional $100 million of EBITDA and we will become the largest global polyurethane spray foam business.

We will be a market leader in technology, service and integration as this business will consume in excess of 0.25 billion pounds of polyols in commodity MDI grades raw material. In addition to this transaction, we are presently reviewing multiple opportunities in all of our divisions.

Finally, let me close with commentary on our earnings outlook for 2020. In January, we completed a fulsome review of the business and projected an increase in EBITDA over the previous year. In fact, our January results were on target of meeting this projection.

As I review our latest forecasts, factoring in the effect of the coronavirus, I think it will be a challenge to meet last year's earnings. Depending on the length, geographic reach and severity of this illness, our numbers may move. Simply put, I am seeing changes on a daily basis.

We look forward to sharing our views of the market as events continue to unfold. With that, operator, we've concluded our prepared remarks and we'll now take questions..

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from Bob Koort of Goldman Sachs. Please go ahead..

Thank you very much. Peter, I just want to make sure I understood the very last part of your prepared remarks there. It sounded like you got your businesses together in January and things were suggesting growth in 2020. And now a couple of weeks later you're thinking that may be challenged.

Is that right? And can you size how big China is for Huntsman from a revenue or profit basis?.

Well, I think that as we look at the overall impact that this potentially could have on the business, I think in January as we look at the results of January, whilst we were seeing and reading things of the coronavirus, we weren't actually seeing the closure of sites and customers cancelling orders and so forth.

As I look at things, I wouldn't just say that this impact is something that is in China but rather Southeast Asia and to a lesser degree in Europe, where we're seeing a wider impact on this. So I do think that this has moved from just a China issue to more of a regional or even Asia European, though I'm not seeing much impact yet in North America.

I think that as we look at the impact that this has, and it will mostly be in our MDI and Polyurethanes business, it will probably be somewhere between $10 million and $15 million per month. And when I say that, that is when I look at the impact of it today. And so, when I look at -- I think that we'll see that full impact hitting us in February.

And it appears that that full impact will be in March as well. And we're assuming at this point that it will have concluded by the end of March and that by the beginning of second quarter, we'll be back on schedule.

Now, how much of this will be recovered in later quarters? How resilient will a Chinese bounce back be and so forth? Would it come very suddenly? Is it kind of hit suddenly or will it be something gradual? Bob that's just where -- we just don't have a view on that at this point..

And if I may follow up maybe related to that, I think when you talked about the qualifying factors toward share repurchase, there are many positives. The one uncertainty was the macroeconomic environment.

How does that change your appetite then? You suggest maybe things will get back online as you go through the year, and you expressed optimism about the quality of the businesses and the balance sheet.

I mean, should you be going into the market now when there's anxiety and taking advantage of that or do you find that you need to have your own confidence and maybe give up some opportunistic purchases now and have certainty later? How do you think about that?.

Well, we are going to be looking at some of those opportunities I would say in the short term. But as we also look at this, I think that it's fair to say that, we're starting to see some assets that we've had an eye on over the course of last year or so become more competitive.

And so, as we look at this, I mean I mentioned three or four factors that we take into effect in repurchasing shares.

I'd also say that, one of the -- probably one of the additional factors we see is the alternative uses of that capital, the hurdle rates and the ROIs, and how we see that in comparison to utilizing that money in the M&A market as well. So, I know this sounds rather nebulous, but we're going to continue with a balanced approach.

I think that we're going to continue buying shares. I just have been asked the question a number of times in the past at what price do you buy or do you not buy, and I just think that it's just not a black and white issue like that..

Great. Thanks, very much..

Thank you, Bob..

Thank you. Our next question is coming from Matthew DeYoe of Bank of America. Please go ahead..

Good morning. You had mentioned that given 1Q headwinds and margin pressure in Polyurethanes, it might be difficult to grow the business year-over-year.

Does that include any of the benefits from the completion of the Icynene deal?.

Yes, that is assuming that the Icynene deal does close. As I said, when we look at that $10 million to $15 million per month, I would say that probably 90% of that is going to be borne by Polyurethanes. That is the predominant business that we have in Asia.

And as we look at our largest manufacturing footprint in Asia, virtually all of our manufacturing assets in Asia that have been impacted or slowed down or shut down, which depending on which asset you look at are all in Polyurethanes as well..

Okay. And then, if I might ask about aerospace.

Did you see any headwinds in 4Q from the 737 MAX production shortage and -- or stoppage I should say? And then, are you assuming earning contribution from that business kind of goes to zero in 2020?.

Yes. I would say that as we look at that -- we've said in the past that that impact on an annualized basis will be in the mid-single-digit – mid-to-low single digit sort of numbers. And I think that we saw that in the fourth quarter. I'm not very optimistic that we're going to see much of a recovery in 2020.

I mean, if we do, I think it will be in the latter part of the year, and it will probably be $2 million to $3 million sort of an impact at best..

All right. Thank you..

Thank you..

Thank you. Our next question is coming from Kevin McCarthy of Vertical Research Partners. Please go ahead..

Yes, good morning.

Peter, what did your polyurethane spray foam volumes grow in North America in 2019? Maybe you could talk a little bit about your experience in that market and how you would expect it to change assuming the Icynene deal closes here soon?.

Yes. In 2019 throughout the year, we saw that just around 10% -- 9%, 10% growth in North America. And I think that if anything that will be continuing. As we see, the continued growth of the market, we'll see more resources going into that market more in 2020. We'll have more sales reps.

We'll have better open and closed cell technology that will be into the market. And we're also going to be doing a big branding push as well throughout 2020. Some of you might see, Huntsman advertise for the very first time in our history. I think we have a very compelling story to tell from a renewability and environmental story.

We now have a facility that is capable in North America that is fully operational today of taking up to one billion PET bottles, the equivalency of one billion PET bottles of used plastics and converting that into polyester polyol, which is a raw material for the spray foam industry.

Later this year, we'll be opening a similar facility in Taiwan that will actually have better raw material economics to produce polyester polyols for the Asian markets which are growing very rapidly for us in the spray foam insulation business than what we're seeing in Texas because of the abundant supply of PET bottles and so forth that are there.

So we not only are going to be looking at maintaining the sort of growth in the past. I think we'll be looking to accelerate that as we encourage states and local municipalities to increase their building standards their installation standards.

This will be a unique opportunity for a chemical manufacturer to actually go out and push for tighter environmental standards in building -- so Kevin you kind of got me out an attention here I'll shut up. But I see that it certainly is continuing and moving forward from what we've seen in the past..

Mr. McCarthy, do you have any additional questions? Okay. Moving on. Our next question is coming from Frank Mitsch of Fermium Research. Please go ahead..

Hey, good morning folks. Peter, if I could put words in your mouth, I mean it seems like M&A is going to play another key role here in 2020 in addition to the acquisition that you already announced.

How should we think about the order of magnitude of the properties that you're looking at? I mean, is it something where you'd be disappointed if you weren't able to announce another $250 million worth of deals or $500 million worth of deals? How should we think about the M&A on the order of magnitude front?.

Well, I do think that as we redeploy our capital -- first of all, I want to just reiterate one thing and that is I think we need to have a balanced approach. I think that we need to guard and possibly look at a dividend that's going to continuously -- I think look at possibly improving that dividend over the course of the next year or two.

I think that the share buyback is going to continue to be important and the organic growth that we see within Huntsman.

But I do think though that as we look at having -- throughout the year, I want us to end 2020 and have us be able to look back and say in the opening days of the year, you divested of an EO, EO derivatives surfactants intermediates business and you replaced those assets with the following assets that you have started to build throughout 2020.

And that's not to say that we can do everything in 2020, but I'd like to have laid the groundwork. If we've got the world's largest spray foam business that we will put together in 2020 I think that we'll have some additional opportunities in Advanced Materials and Performance Products that we're looking at throughout 2020.

And I think that these are going to be bolt-on acquisitions. It will probably be in the range maybe a little bit smaller to similar to what we've seen with the recent acquisitions with the urethane spray foam business as well. But again I think at the end we want to be able to maintain our investment-grade ratings.

And if that means that in order to buy something larger that we may have to look at divesting of something and continue to relook at our portfolio Frank, I'd be willing to look at that as well. But at the end of the day, we want to make sure that we are able to complete these deals and that we're able to keep a strong balance sheet.

But I don't want to see us pigeonholed into -- it's got to be bigger than X or smaller than Y. But again I think that what we've been doing here in the last couple of years is a pretty good indication as to what we'll be doing going forward..

Thank you. That's very helpful. And while we both know that you're not a crude MDI pricing play, we've heard from some of your competitors so far this quarter that -- a sense that that's kind of bottomed and I guess there's a competitor out today with a North American MDI price increase.

A, are you guys following along in terms of announcing an increase? And; B, what is your projection on crude MDI pricing?.

Well, I think that I've never -- internally and as we look at our pricing, we'd look at the internal matrix more than what we would ever look at what a competitor would be doing. But I've rarely frowned on the idea of raising prices and I don't think I would here either.

But I do think though that it's important to look back on slide number 4, a slide that I affectionally call the snake chart. And again this is not pricing. This is margin that we're talking about. And so as you think about that polymeric side that red line along there look at the margins on -- this is over a 10-year period.

The margins today on polymeric MDI globally and this is a composite, this isn't an absolute region, this is a composite of the global is they're low today as they've been in the last decade. And that would tell us that we probably -- just from a pricing and price recovery and raw material recovery, investment justification we need to get prices up.

Conversely if you look at the blue line on that where we expect to be moving the business into more of our formulated and I would say that that blue line represents about 60%, 65% of our overall volume in MDI. That blue line over a decade period, I would challenge you -- again there have been a couple of ticks down from time to time there.

But I would challenge you that over the last decade to find another chemical in our industry that has had that sort of growth. I'm sure there are a couple of them. But by and large that blue line is where we want to be focusing the business.

And when you look at that margin differential between the blue and the red, not only is it larger today than it's ever been, but we also see that it's almost double -- the blue margin today is almost double what the red margin is.

So again I think that short-term economics we sometimes get caught up as to what prices are doing in the next quarter and the next month or so. But as I look at this over the next decade, I think that that's a very compelling argument.

But no, to answer your question directly around pricing if you look at that red line we're in need of getting some prices up. And so we certainly would encourage our internal sales and marketing to be doing such..

Peter, thank you so much..

Thank you..

Thank you. Our next question is coming from Laurence Alexander of Jefferies. Please go ahead..

Good morning, Peter.

Just to follow-up on that pricing discussion, how much of what you're laying out is just the industry dynamic as opposed to Huntsman's own value-based pricing efforts? And on the latter where are we in that process? I mean, early stages or is it largely tapped out at this point?.

Well, I think that when you look at the red again on the more commoditized polymeric that's going to be driven by industry dynamics, I think more than anything else. When I look at the blue, I'd be foolish to say that the blue doesn't have any correlation at all with the red.

But I mean, when you see macro spikes up and down on the red, you'll also see some movement on the blue. But as you see on the blue, I like to think that we're -- I don't want our customers that are buying the blue, that are buying formulated downstream products, I don't want them to think that they're buying a benzene molecule.

I don't want them to think that they're buying polyurethanes. I want them to buy an effect. I want them to pay for what our product is capable of doing for them or changing their customer experience.

And so as we look at pricing on the blue side of the business, I think that again, while -- I don't want to say that it's completely disassociated from the red.

As we look at our Chinese business for instance moving business from the red to the blue taking polymeric pricing and moving that into a Tesla seating application as we have recently done that is going to allow us to take those molecules and to move them to the blue.

And we'll be -- our ideas around pricing that seat MDI steering wheel and so forth, which will have about 12 pounds per car produced in China for Tesla that blue pricing will be completely disassociated from what we see in the red side of the business..

And then just on the non-MDI businesses you have much scope for optimization due to the extent that management teams might have been a bit distracted with all the portfolio reshuffling and restructuring over the last few years.

Or is that -- or should we think of the current margin as sort of a good run rate?.

No. I'd like to think that if anything we've spent a great deal of time on pricing performance in the last two years and doing something that I afford doing that's hiring a consultant to actually come in and look at some of our practices and so forth.

As we look in the M&A world, the M&A world even if you don't buy something, it does teach you something of perhaps some of the areas that I think that we're doing very well in and other areas I think we probably do better in. And I think pricing is one that I'd like to think that we can do better.

But as we particularly focus on -- I'd say, the one area that probably was distracted this last year where a lot of the management time and focus was around the Performance Products. Obviously, when you have the majority of the volume in that business being hived off and you see sales teams and so forth divided.

So yeah, I think in the Performance Products, I look forward to margin improvement and stability in margins and pricing perhaps being the focus of that business more so than it has been in the past..

Thank you..

Thank you. Our next question is coming from Matthew Blair of Tudor, Pickering, Holt. Please go ahead..

Hey, good morning, Peter and Sean. Peter you provided some helpful color on the demand impacts from the coronavirus. You mentioned things like customers canceling orders.

Could you talk about how the virus might be impacting the supply side of the equation, or are you seeing like competitor plant shutdowns? Any thoughts there?.

Yeah. I think that if you start looking at -- I think a good indicator of this is probably our facility in -- our MDI facility in Shanghai. It's actually south of Shanghai.

And as we look at that site, that is a site where even though we've got some -- between the total joint venture some $2-plus billion invested in that site, we're a relatively small player on that side.

You've got refineries and olefins facilities and other urethanes and oxygen all the ancillary power plants anything that entire site is being impaired is being shut back. I don't want to say that the entire site is cold. A lot of facilities are idling and kind of operating in standby.

But I would be shocked if there's anybody in our industry of our competitors in China that are running at full rates right now and distributing unimpeded throughout China. The other area just again anecdotally, I think that it's probably safe to assume that the supply chain in China is extremely low.

If a customer has product or has been keeping inventory, remember, it's the logistics across the country that are being impaired and a lot of logistics within provinces are still open.

And so if I'm a customer and I'm producing footwear or components to the automotive industry or anything, I will be depleting my inventory and I'll be depleting anything I can get from within that province.

So again I don't want to be overly optimistic here but I would assume that how this virus plays itself out, there's going to be quite a bit of restocking that needs to be taking place because this isn't – with a product like MDI, products like our polyols, these aren't products that we're just stockpiling and stockpiling and filling up warehouses of this stuff.

It doesn't store like that..

Sounds good. Thanks for the color. And then I guess this might be for Sean. But the buyback figure in Q4 was lower relative to previous quarters.

Were you locked out during the quarter? Or is that number just kind of reflective of the cautious outlook and wanting to keep your options open on M&A?.

Yes. Matthew it's largely your former comment. Closing on the sale to Indorama and as well as announcing this deal that we had on Icynene, certainly did block us out a bit. So less opportunistic means of going at it but some of our programmed opportunities to buy we're there to take advantage. So yes, that's largely the answer..

Great. Thank you..

Thank you. Our next question is coming from Jim Sheehan of SunTrust Robinson Humphrey. Please go ahead..

Thank you. Good morning. So regarding the Venator ownership you recorded the tax asset and such. It sounds like you're not expecting this to go above $8 a share before you monetize it.

Any sense of the timing of any action you might take there?.

Well, I don't think we care to speculate on the price and the market conditions for TiO2. If the price were to go above – look, I'd much rather sell this at $25 a share and not take advantage of the taxes than to take advantage of the taxes and sell it at a lower rate.

So I think that as we look at our strategy going forward, I would think that this is certainly not an ownership that we want to keep forever. And as we look at our options and our alternative uses of capital and so forth we're sellers. And I doubt that I'm saying anything that the market doesn't already see many times over at this point.

So it's – but I don't think that the tax issue in and of itself will be the sole driver is what I'm trying to say as to what we ultimately try to do here..

Great. And on MDI, particularly in Asia, we've seen weak pricing for a while, margins are pretty low and now we've got this pandemic.

Are low margins in the business causing high-cost competitors to rationalize their idle capacity in your view? And alongside that, could you give us a sense for what operating rates were in the region heading into the coronavirus crisis and where that would be normalized?.

Well, I think that as we look at going into the fourth quarter, as we kind of came out of the fourth quarter we're probably – we're pushing close to 80% capacity utilization in Asia. And where we are today I think all the facilities are being idled and so forth, and so it's exactly what the operating rates are today in the snapshot.

I just don't have a full picture of that. But I would imagine that they're operating pretty much in line with what the demand is right now if not unable to fulfill that demand.

So as we look at the overall operating rates, I think that when you look at the size of the facilities in Asia, you're going to see of the MDI capacity that is in Asia and that should probably read China for the most part, I don't see anybody shutting back because of economics at this time.

I think most of the producers in China are – have a pretty close cost basis. And I don't see economics at this point that would say that we're going to shut down the facility. So today we're largely idled ourselves and operating it and I say largely operating facility at 50% or less.

And I would imagine the rest of the industry is kind of in that same boat..

Thank you..

Thank you. Our next question is coming from Hassan Ahmed of Alembic Global. Please go ahead..

Good morning, Peter..

Good morning, Hassan..

Peter, wanted to follow up on the MDI sort of supply-demand situation. And as I took a look at your Q4 numbers I mean, volume growth within Polyurethanes was up 4% year-on-year, which with all the sort of macro headwinds and the like is clearly not a bad figure.

I mean leaving the impact of coronavirus aside with the macro continuing to look the way it has been, where do you see that underlying demand MDI-wise in 2020, 2021? And part and parcel with that, obviously we've heard about some MDI sort of facility curtailments, some project cancellations, some delays.

How are you thinking about the near term? And when I say near term, call it the next year to three years in terms of global utilization rates..

Yes. Well, our prior year -- our quarter-on-quarter growth, fourth quarter 2019 versus 2018 we were up 6%. And a big chunk of that was from Asia dealing -- because of the new capacity that we were able to bring in during that time period. So, I think that probably had as much to do with the 6% growth as did anything.

But we still saw a 6% growth in Europe. But again I'm not trying to pour cold water on that. That was in part because a year ago as you remember in the fourth quarter of 2018, we were still -- the beginning of that quarter, we were down at the beginning of 2018 if my memory serves right from an overall site outage dealing with a third-party plant T&I.

And so a lot of that growth is taking place in China. As I look at the overall capacity utilization again assuming that there's not a macro recession or something like that if we continue to see global growth of around 4% to 6% in MDI.

I don't see any grassroots facilities that are coming on over the course of the next two to three years in that time period that you're specifying. There will be some construction projects, no doubt and there might be some brownfield expansions around plant debottlenecks and so forth.

But as far as world-scale capacity entering into the market I just don't see it. If anything we ought to be looking at tighter times..

Understood. Understood. And as a follow-up you guys sort of gave some qualitative year-over-year sort of earnings guidance. Now, as you sort of talked about that I mean, what sort of raw material pricing regime are you baking into that guidance? Meaning obviously crude oil has come down a fair bit nat gas has come down a fair bit.

I mean are you sort of in that guidance sort of baking in a continuation of the sort of current raw material pricing regime or more in line with what we saw in 2019?.

I think that you're probably going to see more in line with where we are today, a little bit lower than where we were in 2019 across the board. I think it will be some time before the demand for crude and crude oil derivative products come back into line with supply and demand.

And if you just think of the GDP of China now being the largest crude importer in the world that's -- I think that's going to probably depress crude prices and keep them pretty close to this 50 -- low 50-ish sort of a price low to mid-50s sort of price target throughout most of the year that we can foresee.

If it's anything higher than that it's probably because economic activities has picked up better than expected and that would be good for us or it's because of some sort of manipulation from the world's largest legal -- illegal cartel OPEC and who knows what it's going to do. So, we'll see..

Very good Peter. Thank you so much..

Thank you, Hassan..

Thank you. Our next question is coming from Mike Sison of Wells Fargo..

Hey guys. Just -- I think you mentioned for Q1 you expect EBITDA to be down year-over-year.

Just curious though are you running below fourth quarter levels? And what do you think needs to happen to see some sequential improvement from those levels in 2Q?.

Yes, I mean right now as I look at -- kind of feeling the full brunt of the coronavirus, yes, we are looking at a lower fourth quarter sort of a number that we have online. I mean depending on where we are I would -- again and it is just so nebulous at this point.

But we're probably looking at somewhere around a number of $145 million, $155 million for Q1 somewhere in that area. But again if this thing gets worse, it could be worse. If it cleans up, it could be up from there. But that's just my gut reaction.

And I'm sure that those that run our financial numbers within our company will have apoplexy over me saying that..

Got it. Thank you. And then your slide suggests that you have about $1.7 billion in cash and borrowing capacity. You've got about $500 million in your share buyback left. And seems like you can do three, four, maybe five bolt-ons and then fund the splitter expansion.

Could you finish the buyback this year given the liquidity is pretty big? And you do have plenty of cash to do everything. It seems like you have everything else. And your multiple I would imagine you think is attractive..

Well, I -- look as long as I'm Chief Executive Officer of this company I'll never be happy with our multiple. I think that's just kind of -- any CEO I probably would imagine is always griping about that the market doesn't get their share price.

But as I look at our overall multiple in comparison to our peers, particularly since we announced the sale of our business of our downstream Intermediates and Surfactant business, we've seen in comparison to the peers that we compare ourselves to our basket of peers that our multiple has improved about one and a half to two turns, during that time period.

And so I think that, we're certainly seeing – again, it may not be reflective in the stock price, because the earnings have come down because of the coronavirus and so forth. But as we're seeing – as to how the market values the – or how they value the quality of our earnings we are seeing an improvement in that.

Now as far as the allocation of capital you mentioned $500 million. I would just remind you that was over a two-plus-year period of time. And so as we look at this year would, we be doing that what we've done in the last three years of share buybacks this year? That – I don't foresee us doing that.

But again, I don't ever want to paint myself in a corner, but I would be surprised, if that would be the case. As I said earlier, I think that we're seeing some excellent opportunities as we look at the M&A arena as we look at our downstream integration and in areas in polyurethane and outside of polyurethane.

And as we look at our relative return of share buybacks versus other uses of capital we factor those things into play. And as of today, I think the M&A market is probably going to be our preferred route..

Got it. Thank you..

Thank you..

Thank you. Our next question is coming from John Roberts of UBS. Please go ahead..

Thank you. You just mentioned you're looking outside of polyurethane for M&A and I think you said it earlier as well.

Could you just give us some color are you looking for adhesives in Advanced Materials or looking to go downstream in M&A? And are you really looking in textile chemicals or something?.

Well I would say that the priority that we would see outside of MDI is – I would say that, the vast majority of that is going to be in Advanced Materials and the opportunities that we're looking at today is around Advanced Materials.

Again, I'd remind you that our most recent acquisition that we had previously the spray form was in Performance Products with our maleic anhydride. So we certainly won't be shying away from those opportunities as well. I still think that our amines business is a great business.

And I think that there are some holes in that that could be filled with M&A opportunities..

Thank you..

Thank you. Our next question is coming from Arun Viswanathan of RBC Capital Markets. Please go ahead..

Great. Thanks. Good morning. A couple of years ago at your Investor Day you put out an image that showed 6% demand growth and 4% supply growth. Over that time period, I guess we've seen some headwinds to demand growth China and automotive and so on largely out of your control.

And we've also seen some announcements of new capacity that have now been maybe taken off the table. Could you just review kind of your view on supply-demand fundamentals? I know the near-term is challenged but you did say that this is potentially transitory.

Do you expect things to kind of revert to that positive demand and supply scenario? Or do you think supply-demand growth over the next couple of years is going to be more balanced or maybe even tilted more towards greater supply? Thanks..

Thank you very much. Very good question, I think, it's -- our internal analysis tells us that over the course of the next three years, that our demand for MDI, ought to be growing at about a 6% -- 5.5% to 6%. And that the capacity growth during that same time period will be growing at about 3% to 3.5%.

And operator, perhaps we can take one more question. We try to limit these calls or keep people on for, an hour. Why don't we do -- we've gone over that time. Why don't we do one more question here..

Certainly, our last question today is coming from P.J. Juvekar of Citi. Please go ahead..

Hi, Peter. It's Eric Petrie on for P.J. You talked about international expansion for your spray polyurethane foam. I was wondering if you could talk about, the EBITDA margin, if you were to take that product to Europe as well as Asia.

And then, could you talk about the competitive landscape?.

Well. It should be -- the competitive landscape in many of the areas, where we're starting to grow the business is virtually non-existent. And -- which is very good. But the, urethane supply chain again is coming from those regions. I talked earlier about starting up a polyester polyol facility, in Taiwan.

And I would see that, being able to -- well I would see that, being able to supply our Chinese spray foam in Southeast Asia spray foam markets, out of Taiwan on the polyester polyol side. And the MDI side of that will be coming out of our facility in China. As we look in Europe, we would be supplying those markets, out of those areas as well.

But, this last year was our first year that we had international growth in our spray foam businesses. And that was for the most part all organic growth on our behalf. And we -- I think we've made about $5 million or so of EBITDA this last year. So, again starting from nothing, it's -- but it's -- we're seeing very good growth.

And we're going to be very aggressive in those international markets..

Okay.

And for my follow-up question, have you seen any pricing concessions in your differentiated downstream, MDI with the lower raw materials? And how often do those price contracts reset?.

Yeah. No. The answer is no. We haven't. And as far as the price contracts, yeah, I would just say that, we're dealing with end-use applications that would go into the 10,000-or-so different customers, plus customers.

And every one of those customers, every one of those applications, every one of those formulations, are going to have different price movements and times and so forth. I don't want to leave the impression that at the end of every year or somehow in the summertime, that we're continuously, kind of getting into a season to renegotiate prices.

Our terms on the downstream businesses go anywhere from 3 to 5-plus years. And so, it all really depends on the application, the customer. In the automotive industry you're typically specking in for a 3-to-5-year period on a particular model. On a short-term basis, you might be looking at a couple of months on other applications.

And so, -- and these are all going to be different as you go further-and-further downstream..

Helpful, thank you..

Thank you..

Thank you. At this time, I'd like to turn the floor back over to Mr. Marcuse, for closing comments..

Great, thank you. If you have any follow-up questions feel free to reach out to Investor Relations. Otherwise, we look forward to updating you next quarter. Thank you for joining the call..

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time. And have a wonderful day..