Despite the operational limitations endured by his company during COVID-19 pandemic, Venator, leading and manufacturer of titanium dioxide pigments and performance additives, is highly optimistic about the business outlook and market recovery in the next one year, says Simon Turner, President & CEO, Venator.

“We have seen the fast pace of demand recovery in almost every region. We saw it in the first quarter and then in the second quarter of 2020. Last time we fundamentally saw it continuing into 2020 and we see it the same way for 2021. We haven't seen any weakness in DIY business in any region. We sell coatings around the world and from that point of view, it has been very strong. Be it construction, automotive, electronics, coatings and plastics as well, it is a very encouraging pitch for additives. In the second half, we have seen the return of production to pre-pandemic levels,” Turner remarked while speaking at the recent Deutsche Bank’s Global Basic Materials Conference.

In conversation with David Begleiter, Research Analyst, Deutsche Bank, Turner said, “We have heard anecdotally through some of our customers about difficulty in obtaining a few raw materials which aren't related to us. With the exception of the timber coating business which has got our small part of our additives, the demand is very good in all locations and all segments around the world. Timber has taken the edge off demand and ultimately so has the demand for our products. We saw our sales being constrained due to low levels of inventory. We are ramping up our sites but it will be challenging to rebuild those inventories. The fact is that it will affect our growth. Our EBITDA will be hit approximately by US $11 million in total. We have other parts of business that will help in mitigating the loss but it will make a pretty big impact unfortunately.”

Explaining the impact of COVID-19 on the business, Turner commented, “A lot of our products go into the textile business and this sector has seen the negative impact during the pandemic. Sunscreens and cosmetics aren't bought. We have seen volumes being hit rather than pricing and margins for the first time in our line of business. Now we are on the course to recovery but the path is slow line recovery. We expect to gradually open up our margins and what we see is that raw materials are very much protected against the pricing. Balanced to the cost in the business we are in, each of the customers are looking at the fundamentals as well. We have devised a policy to keep all these aspects in view.”

Sharing his thoughts on environmental bans in China impacting its raw material capacity, Turner said, “The Chinese industry is going through what we went through many years ago. In the early 90s we had to cope with significant environmental investments. Despite tough times, we found ways to squeeze our ways out. I think Chinese will continue to find ways to squeeze up costs. It is more coming to a situation where Chinese industry is beginning to look like western industry.”

On the price increases in Europe due to the gap in Chinese raw material, Turner said, "It is a factor but actually it's just one factor. I think it is rather the broader demand supply and inflation dynamics factors that drive the growth." We have been in active dialogue with our customers with whom we are working closely. They have made their points strongly to us in terms of price predictability and supply reliability. We are managing and working with them. We have got a positive outcome in the first quarter and another positive outcome in the second quarter too. We are looking closely at the raw material impact and that is an evolving picture. The energy up costs in the second half are playing pricing tactics and even now in the third quarter we have seen increases. We expect to see success in that soon.”

Talking about market dynamics from pricing perspective, Turner commented, "In the US, there are some large supply units and pricing in this market has been generally stable in the last couple of years compared to other major regions. Having gone down fast, I am surprised that it didn't go up as fast. We have seen some feedstock inflation in these past few quarters where the demand for Chinese products has narrowed the gap with high grade products. We buy a range of products from different vendors because of our technology footprint. We are seeing different dynamics in each of the different product families. Despite some of these challenges around the industry, I believe we will have the feed to keep the supply of our products intact. We acknowledge that some of the low volume high grade feeds are pushing for more price increases.”

Outlining his company’s business strategy, Turner explained, “We do business on the basis of conscious market positioning. We are relatively small in North America and Asia. So we are careful about picking up our business from local spot points and it is mostly augmented by top market experts in those regions. We have a customer centric tailored approach driven by our previous experiences when we had to take tough decisions. We have a creative approach to pricing such as multi-tailored pricing, quarterly pricing, yearly pricing etc. Customers feel that we are listening to their needs and responding to their business situation."

Kurt Ogden, EVP and CFO, Venator also sounded very optimistic. “We are on track. Let's remember that it is a US $55 million annual EBITDA benefit program that we have been on since last year. We will see those benefits in this year and next year. We will see the necessary action to hit that run rate completely by the end of next year. We have put some temporary cost savings in place last year. That was about US $27 million and it was predominantly in the second and third quarter of 2020. So, if we think of our year on year comparisons, in the third quarter of 2021, we will be lapping the benefits from those savings.”

On how the company will overcome its biggest financial challenge, Ogden stated, “As we work to improve the free cash flow generation, we will see some of these legacy costs abate and fade away over the course of the next couple of years. “With restructuring programs through 2022, the costs are going to come down. We are also looking at evaluation analysis of our pension plan and that is something which takes place once every three years. We have associated cash flow needs for exiting the manufacturing plant at Pori in Finland. We are finalizing the exit as we have got the demolition and decommissioning process. Unfortunately, the site is so big that it will take several years to completely exit. We are optimistic that we will be able to overcome the US $20 million bleed we have taken. We have done well last year and we will be able to do more optimized cash flow by 2023.”

Venator’s maintenance Capex over the period of time has been roughly US $75 million, informed Ogden. “From year on year, it may vary for about US $10 million, plus or minus. We have indicated to spend US $75 - US $85 million Capex this year. Our expectation is once the business becomes free cash flow positive, we will invest in some of the discretionary opportunities that we are holding on to right now. Because we are hyper focused on it, we are going to keep our Capex to the minimum level until we start generating more cash within the business,” concluded Ogden.